Fed Hikes Interest Rates By 0.5% To Combat Inflation

December 15, 2022


The US Federal Reserve (Fed) announced on Wednesday raising interest rates by 50 basis points after four consecutive three-quarter point hikes, signaling additional increases next year amid a slowing economy and unprecedented inflation.

Interest rates in the US are now 4.5%, still lower than 2017 rates when it crossed 5.25%. Based on the Fed’s projections, interest rates would reach between 5% and 5.25% by the end of 2023. In the announcement, officials said proceeding increases “will be appropriate” to help bring inflation down to the Fed’s target level.

Those forecasts are higher than September’s projections, which estimated rates between 4.5% to 4.27% by the end of next year.

Policymakers’ median projection is that interest rates won’t decline before the end of 2024, reaching 4.1% (The September projections said rates would drop to 3.9%).

Those higher-than-normal rates will likely continue into 2025 when inflation should drop to 2.1% by the end of that year. That is the same as the September forecast. However, interest rates would drop to 3.1%, up from 2.9% in the September prediction.

Economists speaking to USAToday said the Fed was too conservative with its forecasts and that inflation and a near (or mild) recession that will likely happen in 2023 would bring inflation down to 2% (The Fed’s long-standing inflation target) much faster than projected.

The Fed began raising rates as inflation reached a 40-year high in March, a month after the Russia-Ukraine war started.

US inflation rate as of Dec. 14 = 7.1%
US year-high inflation rate was in June = 9.1%