The Federal Open Market Committee (FOMC) raised the target range for the federal funds rate by 75 basis points (bp), or 0.75 percentage points, at its meeting on Sept. 20-21, 2022. The new target range is 3.00% to 3.25%.
The FOMC’s press release stated: “Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
Key Takeaways
- The Federal Open Market Committee (FOMC) voted to increase the fed funds rate by 75 basis points at its meeting on Sept. 20-21, 2022.
- The new target range for fed funds is 3.00% to 3.25%.
- As in prior months, the FOMC cited “robust” job gains, a low unemployment rate, and “elevated” inflation as reasons for raising rates.
- Also as in previous months, the FOMC sees Russia’s ongoing war on Ukraine as a key driver of inflationary pressures.
- The Fed will continue with its balance sheet reduction plan announced in May.
- Economic projections made by meeting participants are less optimistic than those submitted at the June meeting.
Unanimous Vote
All 12 voting members present at the meeting voted in favor of the 75-basis-point rate increase. Among them were Federal Reserve Board (FRB) Chair Jerome Powell and FRB Vice Chair Lael Brainard.
Continued Economic Threat From War in Ukraine
The FOMC statement also noted, using precisely the same language seen in the press releases following the several previous meetings in 2022: “Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity.”
Balance Sheet Reduction Stays on Plan
The FOMC statement indicated that the Fed’s balance sheet will continue to be reduced according to a plan that was announced in May 2022. According to this plan, the Fed began reducing its bond holdings by $47.5 billion per month in June, July, and August 2022, thereafter increasing this amount to $95 billion per month.
FOMC Economic Projections
Participants in the Sept. 20-21 FOMC meeting also submitted their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, inflation, and the federal funds rate for each year from 2022 to 2025, and also over the longer run. Compared to projections that were submitted at the June 2022 FOMC meeting, the latest forecasts anticipate lower real GDP growth, a higher unemployment rate, higher inflation, and higher interest rates over the next few years. The new median projections are presented below.
The median projections for real GDP growth are now: 0.2% in 2022, 1.2% in 2023, 1.7% in 2024, 1.8% in 2025, and 1.8% annually in the longer run.
The median projections for the unemployment rate are now: 3.8% in 2022, 4.4% in 2023, 4.4% in 2024, 4.3% in 2025, and 4.0% in the longer run.
The median projections for the overall inflation rate in personal consumption expenditures (PCE) are now: 5.4% in 2022, 2.8% in 2023, 2.3% in 2024, 2.0% in 2025, and 2.0% in the longer run.
The median projections for core PCE inflation are now: 4.5% in 2022, 3.1% in 2023, 2.3% in 2024, and 2.1% in 2025. Longer-run projections were not collected.
The median projections for the federal funds rate are now: 4.4% in 2022, 4.6% in 2023, 3.9% in 2024, 2.9% in 2025, and 2.5% in the longer run.
Correction – September 21, 2022: A previous version of the article misstated the interest rate increase as being 0.75%, not 0.75 percentage points.