Fed hikes interest rates, signaling aggressive fight to curb inflation

The Federal Reserve on Wednesday raised interest rates for the first time since 2018 and laid out an aggressive plan to push borrowing costs to restrictive levels next year in a pivot from battling the coronavirus pandemic to countering the economic risks posed by excessive inflation and the crisis in Ukraine.

The US central bank's Federal Open Market Committee kicked off the move to tighten monetary policy with a quarter-percentage-point increase in the target federal funds rate, lifting that key benchmark from the current near-zero level in a step that will ripple through a variety of other rates charged to consumers and businesses.

But more notably, new Fed projections showed policymakers ready to shift their inflation fight into high gear, with one policymaker, St Louis Fed President James Bullard, dissenting in favor of an even more aggressive approach.

Most policymakers now see the federal funds rate rising to a range between 1.75 percent and 2 percent by the end of 2022, the equivalent of a quarter-percentage-point rate increase at each of the Fed's six remaining policy meetings this year. They project it will climb to 2.8 percent next year – above the 2.4 percent level that officials now feel would work to slow the economy.

Fed Chair Jerome Powell, speaking after the end of the latest two-day policy meeting, said the economy is strong enough to weather the rate hikes and maintain its current strong hiring and wage growth, and that the Fed needed to now focus on limiting the impact of price increases on American families.

Even with Wednesday's actions, inflation is expected to remain above the Fed's 2 percent target through 2024, and Powell said officials would not shy from raising rates more aggressively if they don't see improvement.

"The way we're thinking about this is that every meeting is a live meeting" for a rate hike, Powell said in a news conference, emphasizing that the Fed could add the equivalent of more rate increases by also paring its massive bond holdings. "We're going to be looking at evolving conditions, and if we do conclude that it would be appropriate to move more quickly to remove accommodation, then we'll do so."

The economy may already be slowing for other reasons. Fed policymakers marked down their gross domestic product growth estimate for 2022 to 2.8 percent, from the 4 percent projected in December, as they began to analyze the new risks facing the global economy.