Federal Reserve hikes interest rates for the first time since 2018
“We feel the economy is very strong and will be able to withstand tighter monetary policy,” Fed Chair Pro Tempore Jerome Powell told journalists during Wednesday’s post-meeting press conference.
Prices have soared over the past year for the majority of Americans, pushing inflation well above the Fed’s long-term target of 2% and forcing its hand. The central bank has a dual mandate to keep prices stable and employment at the maximum.
All the expectations for factors that could bring down inflation — such as an improvement in the supply chain gridlock and rising labor force participation — have not materialized, Powell said. So the Fed had to act.
Between the strong job market and high inflation only half of the Fed’s mandate is fulfilled.
What will the Fed do next?
The central bankers also revised up their inflation predictions to a median of 4.3% by year-end, compared with 2.6% projected in December.
US economic growth was meanwhile cut to a median 2.8% this year, from the 4% expected in December.
Spillovers from the Russia-Ukraine conflict will hit the US economy and are already putting upward pressure on inflation, Powell said Wednesday.
“The implications for the US economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity,” the Fed said in Wednesday’s statement.
But there’s no reason to worry just yet.
“We think that will hit GDP to some extent; 2.8% is still really strong growth,” he said. “We feel the economy is very strong and will be able to withstand tighter monetary policy.”