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The U.S. Federal Reserve (Fed) announced on the 16th (local time) that it would raise the benchmark interest rate by 0.25 percentage points to a range of 3.75% to 4.00%. This marks the first rate increase in over three years, since July 2023, and hints at the possibility of further increases within the year. The decision for monetary tightening was made unanimously by all 12 members of the FOMC.
According to the economic projections released by the Fed, 18 out of 19 FOMC members provided year-end interest rate forecasts, with a median estimate of 4.1%. This figure is 0.3 percentage points higher than the forecast made in June. The dot plot indicates that 4 out of 18 members expect the year-end rate to be between 4.25% and 4.50%, while 12 members forecast it to be between 4.00% and 4.25%.
The backdrop for this rate increase is largely attributed to persistent inflationary pressures. The Fed emphasized that inflation remains at a high level and stated that the rate hike would support a return to the FOMC's 2% inflation target. This year, the personal consumption expenditures (PCE) inflation rate is expected to be 3.7%, influenced by a surge in international oil prices contributing to inflationary pressures. Conversely, the outlook for U.S. economic growth has been revised upward, and the unemployment rate forecast has also improved. The Fed Chair noted that inflation has exceeded the target for more than five years, reiterating the necessity of the rate increase.