Federal Reserve Takes Aim at Persistent Inflation with Interest Rate Hike

The US Federal Reserve has raised interest rates for the first time in nearly a year, as part of its efforts to combat persistent inflation. The rate hike, which was widely anticipated, marks the beginning of the Fed's campaign to bring inflation back down to its 2% target.

According to the latest Summary of Economic Projections (SEP), core Personal Consumption Expenditures (PCE) price index inflation is expected to reach 2.2% by 2028, with the fed funds rate projected at 3.9%. These projections suggest a higher real policy rate is needed to bring inflation back down.

The Fed's decision was influenced by its assessment of the solid pace of economic expansion and the impact of geopolitical uncertainty on inflation. While market pricing suggests four more hikes over the next 12 months, the Fed may need to hike at least once more than indicated, but less than currently priced in.