Fed Raises Interest Rates for First Time Since 2018
Federal Reserve officials voted Wednesday to lift interest rates and penciled in six more increases by year’s end, the most aggressive pace in more than 15 years, in an escalating effort to slow inflation that is running at its highest levels in four decades.
The Fed will raise its benchmark federal-funds rate by a quarter percentage point to a range between 0.25% and 0.5%, the first rate increase since 2018.
Officials signaled they expect to lift the rate to nearly 2% by the end of this year—slightly higher than the level that prevailed before the pandemic hit the U.S. economy two years ago, when they slashed rates to near zero. Their median projections show the rate rising to around 2.75% by the end of 2023, which would be the highest since 2008.
The Fed’s postmeeting statement hinted at rising concern about inflation that initially appeared last year to be driven by pandemic-related bottlenecks but has since broadened.
“As I looked around the table at today’s meeting, I saw a committee that’s acutely aware of the need to return the economy to price stability and determined to use our tools to do exactly that,” said Fed Chairman
Jerome Powell
at a news conference on Wednesday that followed the Fed’s first fully in-person meeting in two years.
Mr. Powell signaled greater concern that higher inflation might persist due to a hot job market with record job openings and wages up at their fastest pace in years. “That’s a very, very tight labor market—tight to an unhealthy level, I would say,” he said.
Major U.S. stock indexes rallied after Mr. Powell began speaking and closed higher on the day, with the Dow Jones Industrial Average up 518.76 points, or 1.5%, at 34063.10. Yields on the benchmark 10-year Treasury note rose to 2.185%, compared with 2.16% on Tuesday and the highest level since May 2019.
The rate-setting Federal Open Market Committee approved the rate increase on a 8-to-1 vote, with St. Louis Fed President
James Bullard
dissenting in favor of a larger half-percentage-point increase.
Mr. Powell said that the Fed could finalize a plan to shrink its $9 trillion asset portfolio at its next meeting, May 3-4, and to implement it shortly afterward. The central bank ended a long-running asset-purchase stimulus program last week.
New projections show officials expect to raise rates at a much faster pace than they projected in December, when most penciled in three quarter-percentage-point rate increases for this year, and considerably quicker compared with a series of nine interest-rate increases between 2015 and 2018. It would be closer to the 2004-2006 period, when the Fed raised rates 17 times in succession.
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