The already-slim odds of the Federal Reserve bringing down inflation without causing a painful economic downturn took another leg lower on Wednesday as the US central bank embraced what is set to be the most aggressive campaign to tighten monetary policy in decades.
After approving the largest interest rate increase since 1994 — bringing the federal funds rate to a new target range of 1.50 per cent to 1.75 per cent — the Fed signalled the policy rate could rise well above 3 per cent by year-end, reaching a level that chair Jay Powell said was expected to be “modestly restrictive” on economic activity. More rate rises are also expected in 2023.
The drastic measures reflect a heightened sense of panic that has recently enveloped the Fed as it grapples with the worst inflation in four decades and mounting evidence that the problem could get worse before it improves.