US Fed Hikes Rates By 50 Basis Points, Sees Economy Nearing Stall Speed

The US Fed will raise at least an additional 75 basis points in borrowing costs by the end of 2023 as well as a rise in unemployment and a near stalling of economic growth

The US Federal Reserve will deliver more interest rate hikes next year even as the economy slips towards a possible recession, Fed Chair Jerome Powell said on Wednesday.

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The US Federal Reserve raised interest rates by half a percentage point (50 basis points) on Wednesday. It is also projected that the US Fed will raise at least an additional 75 basis points in borrowing costs by the end of 2023 as well as a rise in unemployment and a near stalling of economic growth, as reported by news agency Reuters.

The US central bank's projection of the target federal funds rate rising to 5.1 per cent in 2023 is slightly higher than investors expected heading into this week's two-day policy meeting and appeared biased if anything to move higher.

The Federal Reserve will deliver more interest rate hikes next year even as the economy slips towards a possible recession, Fed Chair Jerome Powell said on Wednesday, arguing that a higher cost would be paid if the US central bank does not get a firmer grip on inflation.

According to Reuters, only two of 19 Fed officials saw the benchmark overnight interest rate staying below 5 per cent next year, a signal they still feel the need to lean into their battle against inflation that has been running at 40-year highs.

The Fed said in a statement nearly identical to the one it issued at its November meeting, "The (Federal Open Market) Committee is highly attentive to inflation risks ... Ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 per cent over time."

The new statement, approved unanimously, was released after a meeting at which officials scaled back from the three-quarters-of-a-percentage-point rate increases that were delivered at the last four gatherings.

The Fed's policy rate, which began the year at the near-zero level, is now in a target range of 4.25 per cent to 4.50 per cent, the highest since late 2007.

Last week, the Reserve Bank of India’s (RBI's) Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, announced a 35 basis point hike in the repo rate to 6.25 per cent. The SDF stand adjusted to 6 per cent, said Das, adding that the MPC's majority view was to withdraw accommodative stance.