The US Fed Hikes Interest Rates by Half a Point, Promises More

The US Federal Reserve hiked interest rates by half a percentage point on Wednesday and projected another three quarters of a percentage point increase by the end of 2023.

The central bank’s projection of the key interest rate rising to 5.1% in 2023 is slightly higher than investors expected heading into this week’s two-day policy meeting. It confirms the Fed’s continued hawkish stance under Jerome Powell.

The Fed’s actions paved the way for the Bank of England, just hours later, to hike its interest rate by half a percentage point to 3.5%, the highest level in 14 years. More major central banks are expected to announce their own rate hikes in the coming days.

Significantly, 17 out of 19 Fed officials saw the benchmark interest rate rising above 5% next year, a signal that the battle against 40-year high inflation is not over.

US stocks turned slightly negative following the release of the policy statement. In the US Treasury market, yields on the two-year and 10-year notes rose. The dollar edged higher against a basket of currencies.

Analysts say the Fed’s actions show it is not ready to veer from its course of aggressive interest rate hikes until there is sustained and conclusive evidence of a reversal in inflation.

Fed Chair Jerome Powell said in his news conference that it was not important how fast the Fed goes, but rather where it stops and how long it stays there.