The Federal Reserve on Wednesday announced its first interest rate hike since 2018 in order to combat inflation. (iStock)
The Federal Reserve ended its Federal Open Market Committee (FOMC) meeting Wednesday with the announcement that it is raising rates for the first time since 2018.
The Fed raised the federal funds rate by 25 basis points moving it from 0% to a targeted range of 0.25% to 0.5%. This decision came as no surprise after Fed Chair Jerome Powell said he backed the move earlier this month. The Fed also indicated that it anticipates more rate hikes will soon come.
The federal funds rate helps determine the direction of other interest rates including those on mortgages, credit cards, personal loans, student loans, car loans and more.
“Indicators of economic activity and employment have continued to strengthen,” the FOMC said in its post-meeting statement. “Job gains have been strong in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
Fed rate hikes to continue in 2022
When announcing its decision to raise rates, the Federal Reserve also reiterated its goal to achieve a long-term inflation average of 2%, which is significantly lower than the 7.9% annual inflation rate reported in February. The central bank also said that it “anticipates that ongoing increases in the target range will be appropriate.”
“The Federal Reserve raised its short-term rate target for the first time since 2018 at its March meeting,” Mike Fratantoni, Mortgage Bankers Association (MBA) chief economist, said. “More importantly, it clearly signaled that additional hikes are coming, with the median FOMC member expecting to raise rates at each of the remaining six meetings in 2022.
“With the unemployment rate below 4%, inflation nearing 8%, and the war in Ukraine likely to put even more upward pressure on prices, this is what the Fed needs to do to bring inflation under control,” Fratantoni continued. “The FOMC economic projections indicate slower growth and higher inflation than had been the expectation at their December meeting.”
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