United States Federal Reserve building, Washington D.C.
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The Federal Reserve will hike interest rates just one more time in 2023 before the central bank ends its inflation battle, according to its median forecast released Wednesday.
The Fed kept the "terminal rate," or the rate at which its benchmark fed funds rate will peak, unchangedfrom the last estimate in Decemberat 5.1%, equivalent to a target range of 5%-5.25%. The central bank on Wednesday took the benchmark rate a quarter percentage point higher to a range between 4.75%-5%.
The so-called dot plot, which the Fed uses to signal its outlook for the path of interest rates, indicates that a majority of officials, 10 out of 18 members, expect only one more rate hike by the end of this year. Seven Fed officials see rates going higher than the 5.1% terminal rate.
For 2024, the rate-setting Federal Open Market Committee projected that rates would fall to 4.3%, slightly higher than its December estimate of 4.1%.
Here are the Fed's latest targets:
The latest forecast came amid the spreading banking chaos that sent markets onto a roller coaster in March. The Fed and other regulators stepped in with emergency actions to safeguard depositors at failed banks, but concerns still linger about a run in deposits at some regional banks.
Fed Chairman Jerome Powell said the market is getting it wrong when it prices in rate cuts later this year.
"Participants don't see rate cuts this year. They just don't," Powell said in a press conference Wednesday.
Fed officials also updated their economic projections. They slightly hiked their expectations for inflation, with a 3.3% rate pegged for 2023, compared with 3.1% in December. Unemployment was lowered to 4.5%, while the outlook for GDP nudged down to 0.4%.
The estimates for the next two years were little changed, except the GDP projection in 2024 came down to 1.2% from 1.6% in December.
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As a seasoned financial analyst with a deep understanding of monetary policy and economic trends, I can provide valuable insights into the recent developments discussed in the article about the United States Federal Reserve's decisions and projections.
Firstly, the Federal Reserve's decision to hike interest rates just one more time in 2023 before concluding its battle against inflation aligns with the broader economic context. This move is a response to the challenges posed by rising inflationary pressures and the need to maintain a balance in the economy.
The "terminal rate" mentioned in the article refers to the peak of the benchmark fed funds rate, which remains unchanged at 5.1%, indicating the upper limit of the target range is between 5% and 5.25%. The Federal Reserve increased the benchmark rate by a quarter percentage point to a range of 4.75%-5% as part of its efforts to manage inflation.
The dot plot, a tool used by the Federal Reserve to communicate its interest rate projections, reveals that a majority of officials (10 out of 18 members) anticipate only one more rate hike by the end of 2023. Additionally, seven Fed officials project rates going higher than the 5.1% terminal rate, indicating a diversity of views within the committee.
Looking ahead to 2024, the Federal Open Market Committee (FOMC) projects a decrease in interest rates to 4.3%, slightly higher than the previous estimate of 4.1%. This suggests a cautious approach to monetary policy as the central bank seeks to navigate economic uncertainties.
The article highlights the backdrop of banking chaos in March, prompting emergency actions by the Fed and other regulators to protect depositors at failed banks. Despite these interventions, concerns persist about potential runs on deposits at some regional banks, emphasizing the challenges faced by financial institutions.
Federal Reserve Chairman Jerome Powell, in a press conference, dismissed market expectations of rate cuts later in the year, emphasizing that participants do not foresee such cuts. This statement underscores the Federal Reserve's commitment to its current stance on interest rates.
The economic projections updated by Fed officials include a slight increase in the expectations for inflation, with a 3.3% rate projected for 2023 compared to 3.1% in December. Unemployment is revised downward to 4.5%, while the GDP outlook is adjusted slightly downward to 0.4%. The projections for the next two years remain relatively stable, with the GDP projection for 2024 decreasing to 1.2% from 1.6% in December.
In summary, the Federal Reserve's recent decisions and projections reflect a nuanced response to economic challenges, with a focus on managing inflation and maintaining stability in the financial system amid uncertainties.
