The U.S. Federal Reserve increased the federal funds interest rate yesterday by a quarter-percentage point to 0.25-0.50 percent. It is the first increase in the lending rate since 2018.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures,” the Federal Reserve said in a statement. “Regarding the economic fallout from Russia’s military attack on Ukraine, the implications for the U.S. 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 Federal Reserve also raised its inflation projections and lowered economic growth expectations, according to meeting minutes released yesterday. Its forecasting for core inflation is now up to 4.1 percent for full-year 2022, 2.7 percent in 2023 and 2.3 percent in 2024. The previous outlook was for a 2.7 percent rise this year, 2.3 percent next year and 2.1 percent in 2024.
The Reserve’s real gross domestic product growth outlook was trimmed to 2.8 percent in 2022, from its prior forecast of 4 percent growth.
U.S. stock markets gained sharply yesterday afternoon following the Fed announcement, but futures were down for today’s trading. In the oil markets, both Brent Crude and West Texas Intermediate rebounded back over $100 per barrel early this morning.