The Fed raises rates 0.25%, signals more to come

The Federal Reserve raised its target for short-term interest rates a quarter-percentage point Wednesday and signaled many more rate increases are on the way as the central bank tries to quash sky-high inflation.

Driving the news: The policy-setting Federal Open Market Committee increased the federal funds rate to a range of 0.25% to 0.5%, the first rate rise since 2018. The median policymaker expects the rate to be 1.9% at the end of the year, implying a total of 7 rate hikes this year, and 2.8% at the end of 2023.

• Fed leaders also raised their projections for inflation and downgraded their forecasts for growth.

By the numbers: The median Fed official expected inflation for personal consumption expenditures to be 4.3% in 2022, up from 2.6% projected in December.

• Excluding volatile food and energy, their median inflation forecast was 4.1%, up from 2.7% in December.
• The officials also revised their forecast for GDP growth, and now expect the U.S. economy to grow only 2.8% this year, down from the 4% forecast in December.

State of play: The Fed's rate-rising campaign is meant to rein in sky-high inflation by tightening financial conditions and slowing growth. But the central bank faces risks on both sides. The rate increases could be too little too late or they could endanger the expansion.

• The war in Ukraine and associated commodity price increases, combined with shutdowns tied to new COVID outbreaks in China, could make for a bumpy year as the U.S. faces supply shocks, high inflation and tighter money.
• Already, mortgages rates and other longer-term rates have been rising so far this year on anticipation of a series of Fed rate hikes, acting as a restraint on the economy.

What they're saying: "The committee acutely feels its obligation to move to make sure that we restore price stability and is determined to use its tools to do so," Chair Jerome Powell said in a news conference.

• He repeatedly expressed confidence that the expansion will remain robust even with rate hikes. "All signs are that this is a strong economy," Powell said.
• In their formal statement, the Fed policymakers said implications of the invasion of Ukraine 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 Fed also made plans to tighten the money supply by shrinking its $9 trillion balance sheet and is likely to act on those plans "at a coming meeting."

One official dissented. St. Louis Fed President James Bullard preferred to raise interest rates half a percent at this policy meeting, favoring a more aggressive start to the rate rising campaign.