Fed raises rates by 75 basis points

The Federal Open Market Committee today said it would raise the target range for the federal funds rate to 3 to 3-1/4 percent—a 14-year high—to help return inflation closer to its 2% target. The committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.

The FOMC statement noted that the committee will continue to monitor the implications of incoming information for the economic outlook and be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede reaching the committee’s goals.

While acknowledging that higher interest rates would be a “significant hardship” for households and businesses, Fed Chairman Jerome Powell noted that “we will need to bring our funds rate to a restrictive level and keep it there for some time.” The FOMC’s median projection now anticipates rates to reach 4.4% by the end of the year.

When asked at what point the Fed would consider lowering rates, Powell said “we’d want to be very confident that inflation is moving back down to 2%” before taking action to reduce rates. “We have got to get inflation behind us,” he added. “I wish there were a painless way to do that—there isn’t.”