The Federal Reserve concluded its final policy meeting of the year on Wednesday with a decision to raise the short-term interest rate by 50 basis points, or 0.5%, to 4.25 to 4.5 percent. This rate is the highest since 2007 and is part of the Fed’s apparent effort to combat the worst inflation seen in four decades.
Stocks fell after the rate announcement, as investors assessed the forecasts for rates that remain higher for longer. This marks the fastest and steepest pace of rate increases since the early 1980s.
The decision to raise the rate was made despite the fact that the Consumer Price Index (CPI) rose only 0.1% last month compared to the prior month, with the core CPI rising 0.2%. Year-over-year, prices increased 7.1% last month, while core CPI increased by 6%.
The Fed also projected that the rate would rise to 5.1 percent next year, up from 4.6 percent when they last issued forecasts, in September.
Officials also forecast that growth will fall sharply and that unemployment will rise notably, sending the economy deeper into recession. The unemployment rate is predicted to remain elevated in 2024 and 2025.
The Federal Reserve Open Market Committee (FOMC) noted that it would do more to influence the economy than previously expected.
