Federal Reserve Chair Jerome Powell said officials were determined to curb inflation after they raised interest rates by 75 basis points for a third straight time and signaled a more aggressive-than-expected path of rate hikes to come.
"We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%," he told a press conference in Washington on Wednesday after officials lifted the target for the benchmark federal funds rate to a range of 3% to 3.25%. That's the highest since before the 2008 financial crisis, and up from near zero at the start of this year.
Officials forecast that rates would reach 4.4% by the end of this year and 4.6% in 2023, a more hawkish shift in their so-called dot plot than expected. That implies a fourth-straight 75 basis-point hike could be on the table for the next gathering in November, about a week before the U.S. midterm elections.
Powell said his main message was that officials were "strongly resolved" to bring inflation down to the Fed's 2% goal and added that "we will keep at it until the job is done." The phrase invoked the title of former Fed chief Paul Volcker's memoir "Keeping at It."
Policy makers now expect the key rate to rise to 4.4% by year end and 4.6% during 2023, according to the median estimate in updated quarterly projections published alongside the statement.
Further ahead, rates were seen stepping down to 3.9% in 2024 and 2.9% in 2025.
The policy-sensitive two-year Treasury yield surged, jumping above the 4% level. Meanwhile the S&P 500 index plunged — reversing early day gains — and the dollar index hit a new record high.
Swaps traders boosted where they now see the funds rate ending the year to about 4.31%, from around 4.22% before the FOMC meeting wrapped.
The projections, which showed a steeper rate path than officials laid out in June, underscore the Fed's resolve to cool inflation despite the risk that surging borrowing costs could tip the US into recession.
