By Tom Burnett CFA
On September 21, 2022, the Federal Reserve voted to raise the Fed Funds target rate by 75 basis points. The new range is now 3 to 3.25%. The vote was unanimous. The Fed statement made it clear that the Board will continue to move rates higher until inflation comes back down to the 2% level. The Fed now ‘anticipates that ongoing increases in the target range will be appropriate’. In addition, the Fed will continue to shrink its balance sheet with sales of securities along with the run off of maturing bond holdings.
The Fed also released its latest quarterly summary of Economic Projections. Real GDP is now forecast to grow by only 0.2% in 2022. The June forecast was for an increase of 1.7%. The outlook for 2023 GDP growth is now seen as 1.2%, down from a prediction of 1.7% in the June summary. The unemployment rate is projected to average 3.8% this year moving up to a rate of 4.4% in 2023. PCE inflation is now expected to average 5.4% this year, before falling to 2.8% in 2023. Finally, the Fed Funds rate is forecast to average 4.4% this year and 4.6% next year. The range in the Fed Funds rate is now expected to be 4.4% to 4.9% in 2023, well above the June forecast of a range between 3.6% and 4.1%.
The next Fed meeting is set for November 2, 2022.
Tom Burnett CFA is Director of Research