WASHINGTON, DC – MAY 03: Federal Reserve Board Chairman Jerome Powell delivers remarks at a press conference after the Federal Open Market Committee meeting on May 3, 2023 in Washington, DC. The Federal Reserve announced a 0.25 percentage point interest rate hike, bringing the key federal funds rate to more than 5%, a 16-year high. (Photo: Anna Moneymaker/Getty Images) (Photo: Anna Moneymaker/Getty Images)
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The Federal Reserve suspended its rate hike in June but forecasts it will raise interest rates by as much as 5.6% before the end of 2023, according to central bank projections released on Wednesday.
Fed on Wednesday it kept the key lending rate in a target range of 5%-5.25%. But it was his projections, the so-called dot-plot, that moved markets and sent them lower as the central bank predicted two more hikes. This is in the event that the central bank maintains the pace of raising rates at quarter-point increments.
Fed Chairman Jerome Powell said the committee’s next meeting in July remains a “lively” meeting, signaling that a quarter-point hike is off the table.
“We haven’t, we haven’t made a decision about July … Of course it’s come up in the meeting from time to time, but we’ve really focused on what to do today,” Powell said press conference Wednesday. “I would say… two things: First, no decision has been made. Second, I expect it to be a lively meeting.”
Here are the Fed’s latest targets:
Eighteen members of the Federal Open Market Committee laid out their expectations for rates in 2023 and beyond in a dot chart. Four members have seen one rate hike this year and nine expect two. Two other members added a third trip, while one saw another four. Only two members signaled that they would not see any more hikes this year.
The central bank also raised its forecasts for the next two years, now forecasting a Fed funds rate of 4.6% in 2024 and 3.4% in 2025. That’s up from previous forecasts of 4.3% and 3.1%.
Meanwhile, Fed members raised their expectations for economic growth. The summary of economic projections now shows a 1% expected increase in GDP, compared to the 0.4% estimate in March.
Officials were also more upbeat about unemployment, which now stood at 4.1% at the end of the year, compared with 4.5% in March.
On inflation, the central bank raised its forecast for core inflation (excluding food and energy) to 3.9% and cut it slightly to 3.2% for headline inflation. Those figures were 3.6% and 3.3% for the personal consumption expenditure price index, the central bank’s preferred gauge of inflation.
— CNBC’s Jeff Cox contributed reporting.