The US Federal Reserve announced a quarter-percentage point interest rate increase on Wednesday, nearly two years to the day the central bank slashed its benchmark federal funds rate to zero amid the recession triggered by the COVID-19 pandemic.
“It’s clearly time to raise interest rates,” said US Fed chairman Jerome Powell at a press conference following the conclusion of a two-day meeting at the central bank.
US Fed move to kickoff rate hike cycle
The US Fed said it would raise the federal funds rate to a range of 0.25-0.50%, a move that is likely just the kickoff of a lengthier rate hike cycle. The CME FedWatch Tool projects a roughly 35% chance that the benchmark rate will be between 1.75 to 2% by the end of the year.
Looking further ahead, there is less certainty.
The expectation is for more incremental rate increases, with estimates that by the US Fed’s July 2023 meeting, the range will be between 2.25-2.75%, with roughly 50% probability.