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The Federal Reserve raised interest rates by three-quarters of a percentage point on Wednesday, marking the most aggressive rate hike since 1994. Following weeks of speculation, the Federal Open Market Committee boosted its benchmark funds rate to a range of 1.5%-1.75%, the highest level since just before the Covid pandemic started in March 2020. Stocks were volatile after the Fed’s decision but turned upward following Chairman Powell’s post-meeting news conference. “Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Powell said. He added, though, that he expects the July meeting to see an increase of 50 or 75 basis points. He said decisions will be made “meeting by meeting,” and the Fed will “continue to communicate our intentions as clearly as we can.”

“We want to see progress. Inflation can’t go down until it flattens out,” Powell said. “If we don’t see progress … that could cause us to react. Soon enough, we will be seeing some progress.” The FOMC members indicated that rate increases would be much stronger in the future to arrest inflation which has been increasing at its fastest pace since December 1981, according to one commonly used measure. According to the midpoint of the range of individual members’ expectations, the Federal Reserve’s benchmark rate will end the year at 3.4%. An upward revision of 1.5 percentage points compared to the March estimate is in order. In 2023, the committee anticipates the rate to increase to 3.8%, a full percentage point higher than forecast in March.

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