Federal Reserve raises rate by 50 basis points, FOMC says rate will rise to 5.1% next year

The 0.5 percentage point increase follows four consecutive three-quarter point increases coded in recent months. The FOMC rate hike follows the recent U.S. inflation report, which indicated that consumer prices fell to 7.1 percent, which was below expectations.

Fed raises federal funds rate by 50 basis points, central bank expects more increases in the future.

Following the Consumer Price Index (CPI) report released on Tuesday, members of the U.S. Federal Reserve met on Wednesday and announced a 50bps rate hike. The December hike is lower than the last four three-quarter point hikes (75bps).

“Committee seeks maximum employment and 2% inflation in the long run“, the FOMC said. “In support of these objectives, the committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent.“The Fed expects an additional 75 basis point increase in the federal funds rate by the end of next year.

The news follows Tuesday’s CPI data that rose less than expected, with measures showing that the inflation rate in November rose 7.1 percent from a year earlier. Core CPI jumped 0.2 percent on the month, the U.S. Bureau of Labor Statistics (BLS) noted. “Over the past 12 months, the all-items index rose 7.1% before seasonal adjustment“, the BLS CPI report details. The FOMC report notes that the Fed will continue to monitor “incoming information for the economic outlook.”

“In addition, the committee will continue to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities, as described in the plans to reduce the size of the Federal Reserve’s balance sheet released in May,” FOMC members revealed. “Committee firmly committed to returning inflation to its 2% target“, the FOMC added. After the rate hike and the bank’s signal that further increases will be enacted, equity markets and central banks were very optimistic. precious metal prices fell.

Crypto-currency prices also fell, and the price of bitcoin fell below the $18K area after the FOMC statement. The Fed has coded a number of rate hikes this year with a half percentage point jump and four three-quarter point hikes, making a grand total of five federal funds rate hikes in 2022.

In late November, Federal Reserve Chairman Jerome Powell suggested in a speech at the Brookings Institution in Washington that an easing of rate hikes could very well occur in December. Jerome Powell has been facing political pressure regarding rate hikes and Tesla’s Elon Musk has been warning against aggressive rate hikes lately.

“We still have work to do,” Jerome Powell told reporters Wednesday afternoon, and he further noted that “inflation risks are on the rise.”