Fed hikes 25 bps, terminal rate forecast unchanged at 5.1%

Fed raise interest rate by 25bps to 4.75-5.00% as mostly expected, on unanimous vote. Tightening biased is maintained as “the Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time”.

The terminal rate is still put at 5.00-5.25% this year. But a smaller rate cut is projected in 2024. Growth projections are lowered for 2023 and 2024. Core inflation forecasts were raised slightly for this year and next.

In the new economic projections (median):

• Federal funds rate for 2023 was unchanged at 5.1%.
• Federal funds rate for 2024 was raised from 4.1% to 4.3%.
• Federal funds rate for 2025 was unchanged at 3.1%.
• GDP growth in 2023 was lowered from 0.5% to 0.4%.
• GDP growth in 2024 was lowered from 1.6% to 1.8%.
• GDP growth in 2025 was raised from 1.8% to 1.9%.
• Unemployment rate in 2023 was lowered from 4.6% to 4.5%.
• Unemployment rate in 2024 was unchanged at 4.6%.
• Unemployment rate in 2025 was raised from 4.5% to 4.6%.
• Headline PCE inflation in 2023 was raised from 3.3% to 3.1%.
• Headline PCE inflation in 2024 was unchanged at 2.1%.
• Headline PCE inflation in 2025 was unchanged at 2.1%.
• Core PCE inflation in 2023 was raised from 3.5% to 3.6%.
• Core PCE inflation in 2024 was raised from 2.5% to 2.6%.
• Core PCE inflation in 2025 was unchanged at 2.1%.

In the new dot plot:

• In 2023, the majority, 10 committee members, expect interest rate at 5.00-5.25% , with only one expecting lower rates.
• In 2024, 14 members at least at least two rate cut from 5.00-5.25% level. Majority of 10 members expect rates to be between 4.00-4.75% range.

Full FOMC minutes here.

Full Summary of Economic Projections here.