This story has been updated to include market movements. As widely expected, the Federal Reserve announced Wednesday that it is raising its key interest rate by half a percentage point, to a range of 4.25 to 4.5%—a smaller increase than the previous four rate hikes, which were three-quarters of a percentage point, though still large by historical standards. Markets rose ahead of the announcement, with investors predicting that the Fed would continue to ease its policy of raising rates in an effort to cool the economy and tame the worst inflation in 40 years, the New York Times reports. But stocks dropped after the Fed forecast that its key rate will reach a range of 5% to 5.25% by the end of 2023, dashing hopes that rates would be cut before the end of that year.
The Fed also forecast slower growth and higher unemployment for next year and 2024, the AP reports. Analysts had expected that while the Fed would continue raising interest rates in early 2023, the next two rate hikes would be a quarter-point and the central bank would keep the range at 5% or below. This is the Fed's seventh rate hike of the year. Last month inflation fell to 7.1% year-on-year—but the figure is still far above the Fed's target of 2%. "Since inflation continues to remain elevated and recession risks are becoming clearer, we expect Chair Powell to provide a hawkish press conference to rein in equity prices and push back on the rate cuts priced in for late 2023," Gargi Chaudhuri, head of iShares Investment Strategy, told USA Today before the announcement. (Read more Federal Reserve stories.)