In a move that equates to the most aggressive hike since 1994, the Federal Reserve raised its benchmark interest rates on Wednesday. After weeks of speculation, the rate-setting Federal Open Market Committee decided to raise the benchmark funds rate to a range of 1.5%-1.75%, the highest since March 2020.

The decision followed its two-day policy meeting and caused stocks to give up some of their recent gains. According to one commonly cited measure, members indicated a stronger path of rate increases ahead to arrest inflation going back to December 1981

The Fed will end the year with a 4% benchmark rate. The revision of the March estimate was 1.5 percentage points higher. The rate is expected to rise to 3.8% in 2023, a full percentage point higher than what was expected in March.

The officials now expect a 1.7% gain in GDP in 2022. Core inflation, which excludes food and energy costs, is indicated at 4.3%, up just 0.2 percentage points from the previous projection. In April, core PCE inflation ran at 4.9%, so the projections anticipate an easing of price pressures. Even with higher inflation, the committee painted a mostly positive picture of the economy. After edging down in the first quarter, the economy appears to have picked up. The unemployment rate has not gone up in recent months. Inflation is elevated due to supply and demand imbalances, higher energy prices, and broader price pressures. Longer-term, the committee outlook for policy largely matches market projections which see a series of increases ahead that would take the funds rate to about 3.8%. Kansas City Fed President Esther George was the only one who did not approve the statement. The rate is used by banks to set what they charge each other for borrowing. It feeds through to a lot of consumer debt products. Rates on savings accounts and CDs can be driven higher by the funds rate.

Inflation is running at its fastest pace in more than four decades. The funds rate is used by the central bank to try to slow down the economy. The post-meeting statement removed the phrase "expects inflation to return to its 2% objective and the labor market to remain strong." The statement made no mention of the Fed's commitment to the goal. Stagflation occurs when economic growth is already waning and prices are still rising. The Atlanta Fed's GDPNow tracker put the second quarter as flat after the first quarter's growth rate declined. The rule of thumb is to see negative growth for two quarters in a row. Heading into Wednesday's decision, Fed officials engaged in a public bout of hand wringing. For weeks policymakers had been pushing for 50-basis-point increases in order to arrest inflation. CNBC and other media outlets reported recently that the Fed could go beyond that. In May, Fed Chairman Powell said that hiking by 75 basis points was not being considered. The recent signals caused the more aggressive action. The consumer price index shows that inflation rose in May. The University of Michigan's consumer sentiment survey hit an all-time low. The retail sales numbers released Wednesday show that the all important consumer is not growing as fast as they used to. The jobs market has been a point of strength for the economy. When adjusted for inflation, average hourly earnings have fallen over the last year. The unemployment rate will move up to 4.1% by 2024 according to the projections. Powell said in May that he hoped for a soft or softish landing. Recessions have been caused by rate-tightening cycles.

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