US Fed Raises Interest Rate by 0.5%; No Reduction till 2024
- The US Fed Reserve hiked interest rates by 0.5%.
- The expected terminal rate for 2023 is 5.1%, higher than the 4.6% estimated in November.
- It has been indicated that there is little chance of a reduction in rates in the coming years.
The US Federal Reserve raised the interest rates by 0.5% on Wednesday, indicating the highest level in 15 years. Along with the hike in the interest rates, Fed Chairman Jerome Powell and the other officials forecasted the interest rates of the next year which are expected to be higher, with no reductions till 2024.
Significantly, the Federal Open Market Committee (FOMC) calculated the “terminal rate”, a point at which the interest rate is expected to reach, by analyzing the “dot plot” of individual members’ expectations. Out of 19 dots, 17 showed that the interest rate would go beyond 5% in 2023.
Thus, as per the analysis, the expected terminal rate was 5.1%, which is equivalent to a target rate of 5% – 5.25%, a rate that is much higher than the 4.6% forecasted in November.
Subsequently, the Chinese reporter Colin Wu, tweeted on his Twitter account Wu Blockchain, that the Fed’s estimation of the higher interest rates and the unemployment rate at the end of next year suggests the Fed’s understanding of the entrenched inflation:
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