Fed rate hike September 2022:

The Federal Reserve on Wednesday raised benchmark interest rates by another three-quarters of a percentage point and indicated it will keep hiking well above the current level.

In its quest to bring down inflation running near its highest levels since the early 1980s, the central bank took its federal funds rate up to a range of 3%-3.25%, the highest it has been since early 2008 following the third consecutive 0.75 percentage point move.

The increases that started in March and from a point of near-zero mark the most aggressive Fed tightening since it started using the overnight funds rate as its principal policy tool in 1990. The only comparison was in 1994, when the Fed hiked a total of 2.25 percentage points; it would begin cutting rates by July of the following year.

Along with the massive rate increases, Fed officials signaled the intention of continuing to hike until the funds level hits a “terminal rate,” or end point of 4.6% in 2023.

The “dot plot” of individual members’ expectations doesn’t point to rate cuts until 2024. Fed Chairman Jerome Powell and his colleagues have emphasized in recent weeks the unlikelihood that rate cuts will happen next year, as the market had been pricing.

Federal Open Market Committee members indicate they expect the rate hikes to have consequences. The funds rate on its face addresses the rates that banks charge each other for overnight lending, but it bleeds through to many consumer adjustable-rate debt instruments, such as home equity loans, credit cards and auto financing.

In their quarterly updates of estimates for rates and economic data, officials coalesced around expectations for the unemployment rate to rise to 4.4% by next year from its current 3.7%. Increases of that magnitude often are accompanied by recessions.

Along with that, they see GDP growth slowing to 0.2% for 2022, rising slightly in the following years to a longer-term rate of just 1.8%. The revised forecast is a sharp cut from the 1.7% estimate in June and comes following two consecutive quarters of negative growth, a commonly accepted definition of recession.

The hikes also come with the hopes that headline inflation will drift down to 5.4% this year, as measured by the Fed’s preferred personal consumption expenditures price index, which last showed inflation at 6.3% in August. The summary of economic projections then sees inflation falling back to the Fed’s 2% goal by 2025.

Core inflation excluding food and energy is expected to decline to 4.5% this year, little changed from the current 4.6% level, before ultimately falling to 2.1% by 2025. (The PCE reading has been running well below the consumer price index.)

The reduction in economic growth came even though the FOMC’s statement massaged language that in July described spending and production as having “softened.” This meeting’s statement noted that “Recent indicators point to modest growth in spending and production.” Those were the only changes in a statement that received unanimous…