Federal funds target rate. The Fed had periods. Rate increases. Federal funds target rate. There were periods of Fed rate increases.
The Federal Reserve lifted its key interest rate by a quarter of a percentage point on Wednesday as policymakers took their first decisive step toward trying to tame rapid inflation by raising borrowing costs.
The Fed decided to raise interest rates for the first time in more than a year this week, after keeping them near zero since March 2020. Policymakers projected six more similarly sized moves over the course of the next four years as inflation has reached a 40-year high, signaling that they are prepared to pull back support for the economy markedly.
The economy doesn't need this highly accommodative stance or want it, according to the Fed chair.
The central bank's assault on rapid price increases will force it to strike a delicate balance as policymakers try to slow the economy just enough to temper demand and allow price pressures to moderate without going so far that they plunge the United States into recession.
The probability of a recession within the next year is not particularly elevated, according to Mr. Powell.
The economy can handle interest rate increases.
Despite the forecast for higher rates, stocks rose 2.2 percent on Wednesday, a possible signal that investors took heart in Mr. Powell's insistence that the economy was strong enough to endure the bank's efforts to slow inflation.
After two years of trying to help the economy recover from the damage caused by the Pandemic, the Fed decided to raise rates. The U.S. economy has recovered quickly after the coronaviruses disrupted commerce around the world. America's job market has rebounded quickly from steep job losses, and businesses are struggling to find workers.
The rate of inflation has not been seen since the 1980s because of a surge in consumer spending. The bounce-back has been vigorous instead of the anemic one that kept millions of applicants out of work and left inflation tame.
The Fed is trying to cool it to a more sustainable pace because it may have too much heat.
We have had price stability for a long time, but now we see the pain, Mr. Powell said.
In December, when they last released economic projections, central bankers plotted a more aggressive plan for controlling inflation. The median estimate shows that officials will raise rates to 2.8 percent by the end of the year. That is high enough that the Fed thinks it might be wise to use the brakes on the economy.
They knew their policy didn't match the economic backdrop, and this is catch-up.
Mortgages, car loans and borrowing by businesses will be more expensive because of higher interest rates. Fed officials hope that eventually weighing down surging prices will slow consumption and investment.
The central bank's forecasts for strong growth and a low unemployment rate this year and next might be optimistic, given the path ahead for interest rate increases.
Michael Feroli, chief U.S. economist at J.P. Morgan, said that it was a bit of a magical, flawless disinflation.
Five Fed officials think rates could go up by the end of the decade. Each square. One Fed is represented. The official's judgment. Each square is a Fed official's judgement. Five Fed officials think rates could go up by the end of the decade.
Mr. Powell said that inflation was well above the Fed's target and that supply chain disruptions had been larger and longer than expected. He noted that high gas prices could keep costs elevated, as price increases are broadening to rent and other services.
According to the Fed's quarterly economic projections, inflation was expected to be 4.3 percent by the end of the year. The increase is less than the 6.1 percent in the 12 months through January, but it is more than the Fed's goal of 2 percent.
Many signs show that the Fed is achieving its goal of maximum employment and price stability. There are too few workers to go around and there are plentiful job openings. Wage growth has been pushed higher by a booming job market as employers compete for workers and try to retain them.
That could also cause inflation. Companies trying to cover labor costs are left with higher pay because it gives workers more to spend. Mr. Powell said that recent wage growth has not been sustainable.
Wages are moving up in ways that are not consistent with inflation because of a mismatch of demand and supply in the labor market.
Some Fed officials are nervous as they see signs of price pressures. The president of the Federal Reserve Bank of St. Louis voted against the committee's decision because he favored a larger interest rate increase.
Mr. Bullard and other Fed officials have argued that moving rates up more quickly would show that the central bank was prepared for price increases.
Mr. Powell made it clear on Wednesday that even if it is raising rates steadily instead of adjusting them quickly, the Fed's policy committee knows it needs to act to restore price stability.
Mr. Powell said they were not going to let high inflation become entrenched.
The Fed is changing policy. Russia's invasion of Ukraine has made it difficult to maintain economic growth around the world, even as oil and gas prices have gone up and inflation has gone up.
The Federal Open Market Committee said that the implications for the U.S. economy are uncertain.
Mr. Powell went out of his way to lay out the central bank's plans clearly. While he did not commit to a quarter-point rate increase at each meeting, he noted that many officials expect the same number of rate moves as there are left in 2022.
Markets are watching to see when the Fed will begin to shrink its balance sheet of bond holdings, a move that could push up longer-term interest rates. Mr. Powell said that a plan could come as soon as the Fed's May meeting, and that it would look like the one the bank used when it shrunk its balance sheet.
The impact is likely to be felt as the Fed tries to control inflation. The central bank has signaled policy changes that have already led to a rise in mortgage rates.
It is likely that rising borrowing costs will affect hiring, wage growth and asset prices.
Any time the Fed raises interest rates, there is a chance of a recession. Retail sales data on Wednesday showed that higher prices may be making it harder for some consumers to afford things. Households are sitting on big savings amassed during the Pandemic, which could help them to sustain spending in the months ahead, but rapid price increases could eventually eat into those stockpiles.
Mr. Powell said that high inflation takes a toll on everyone, but especially on people who use most of their income to buy essentials.
The Fed caused a deep recession in the early 1980s when it battled inflation. Many have warned that a gentle, easy end to the current inflationary burst is not assured.
It's been a crazy year and it's too soon to say it's a pipe dream, according to an economist at Harvard University.
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