Fed Announces 2023 Interest Rate Hike... Growth and Inflation Forecasts Also Revised Upward (Comprehensive)

Fed Officials Bring Forward Rate Hike Timing Through Dot Plot
Unanimous Decision to Keep Benchmark Rate Steady...No Mention of Tapering
Inflation Forecast Raised to 3.4%...Growth Rate Projected at 7%

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. central bank, the Federal Reserve (Fed), has indicated that it may raise interest rates within 2023. The Fed is assessed to be moving toward interest rate hikes, having also revised upward its inflation and economic growth forecasts for the U.S. this year.

[Image source=Reuters Yonhap News]

On the 16th (local time), the Fed announced a decision to keep the benchmark interest rate unchanged following the Federal Open Market Committee (FOMC) regular meeting. The statement made no mention of tapering the asset purchases, which are currently being reduced at a pace of $120 billion per month.

The Fed evaluated that economic activity and employment indicators have strengthened, while sectors most affected by COVID-19 remain weak but have shown improvement.

The dot plot released separately by the Fed on the day revealed a shift in committee members’ views on the timing of interest rate hikes. In March, most members expected rate increases only in 2024, but this time, opinions emerged suggesting there could be two rate hikes in 2023.

The Fed also significantly revised upward its economic outlook. It projected the U.S. inflation rate for this year at 3.4%, which is 1.0 percentage point higher than the March forecast of 2.4%. This level is considerably above the Fed’s target average inflation rate of 2%. However, the Fed reiterated its stance that the inflation is temporary.

The Fed raised its economic growth forecast for this year from 6.5% to 7%, while maintaining the unemployment rate forecast at 4.5%.

Following the Fed’s announcement, the New York stock market extended its losses. Concerns over the timing of interest rate hikes spread, with the Nasdaq index falling from a slight decline to a 1% drop. The Dow Jones Industrial Average also declined by 0.9%.

The yield on the U.S. 10-year Treasury note rose by 0.047 percentage points to 1.545%. An increase in Treasury yields indicates a decline in bond prices.

Meanwhile, the Fed announced it will extend currency swap agreements with nine central banks, including the Bank of Korea, through the end of the year.