The U.S. Federal Reserve has raised interest rates for the first time since 2018 and signaled that a total of six rate hikes are likely throughout this year.
After keeping its benchmark interest rate near zero since the onset of the pandemic, the American central bank raised its benchmark interest rate by 25 basis points.
That will bring the rate now into a range of 0.25% to 0.50%. The move will correspond with a hike in the prime rate and immediately send financing costs higher for many forms of consumer borrowing and credit.
Along with the latest rate hike, the committee also penciled in increases at each of the six remaining meetings this year, pointing to a consensus funds rate of 1.9% by year’s end. That is a full percentage point higher than indicated last December.
U.S. Federal Reserve also sees three more rate hikes in 2023 then none in 2024. The central bank last raised interest rates in December 2018, then had to backtrack the following July and begin cutting as the economy gathered steam.
In its post-meeting statement, the Federal Reserve said it “anticipates that ongoing increases in the target range will be appropriate.”
Officials also adjusted their economic outlook on multiple fronts, seeing much higher inflation than they expected in December and considerably slower economic growth.
Committee members bumped up their inflation estimates, expecting the personal consumption expenditures price index excluding food and energy to reflect 4.1% growth this year, compared with a 2.7% projection in December 2021.
Stocks initially reacted negative to the announcement but then bounced back. Bond yields momentarily moved higher, with the benchmark 10-year Treasury note rising to 2.22% before receding.
