US interest rates continued on their upward trajectory during December, although central bank policymakers moderated the pace of their tightening action.
- The Fed raised its key rate to a target range of 4.25% to 4.5%
- Inflation eased slightly in November
- Rates are forecast to rise above 5% by the end of 2023
US interest rates continued on their upward trajectory during December, although central bank policymakers moderated the pace of their tightening action. The Federal Reserve (Fed) raised interest rates for a seventh time this year to a range of 4.25% to 4.5%. However, the members of the Federal Open Market Committee (FOMC) voted unanimously in favour of a rise of 50 basis points instead of the 75 basis points of the previous four increases.
“50 basis points is still a historically large increase, and we still have some ways to go” (Fed Chair Powell)
Nevertheless, further tightening is on the cards, and Fed Chair Jerome Powell warned: “50 basis points is still a historically large increase, and we still have some ways to go”. Fed policymakers expect rates to have risen above 5% by the end of 2023. Although the rate of consumer price inflation in the US has eased, falling from 7.7% year on year in October to 7.1% in November , inflation remains at a multi-decade high, and Chair Powell said: “It will take substantially more evidence to give confidence that inflation is on a sustained downward path”.
Fed officials expect the US economy to expand by 0.5% in 2023, while inflation is forecast to remain above its 2% target until 2026. Expectations for US economic growth in 2023 were downgraded from 1.2% to just 0.5%, and the unemployment rate is forecast to rise to 4.6%. Chair Powell said: “The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done”.
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