The Federal Reserve Anticipates Two Additional Rate Hikes in 2023, With Rates Climbing to 5.6%

The Federal Reserve paused its hiking campaign in June but forecasts indicate a potential interest rate increase of up to 5.6% before the end of 2023, according to the central bank’s latest projections released on Wednesday.

On Wednesday, the Fed kept the key borrowing rate within a target range of 5%-5.25%. However, it was the central bank’s projections, known as the dot plot, that caused market reactions, leading to a decline as the central bank projected two more increases, assuming the rate-hiking pace remains at quarter-point increments.

Fed Chairman Jerome Powell stated that the upcoming July committee meeting remains uncertain, suggesting that a quarter-point hike has not yet been decided.

“We didn’t make a decision about July. … Of course, it came up in the meeting from time to time, but the focus was primarily on today’s actions,” Powell stated during a press conference on Wednesday. “I would say two things: One, a decision hasn’t been made. Two, I do expect that it will be a live meeting.”

Here are the latest targets set by the Fed:

In the dot plot, eighteen members of the Federal Open Market Committee shared their expectations for rates in 2023 and beyond. Four members anticipate one more rate increase this year, while nine expect two. Two additional members foresee a third hike, and one member expects four more. Only two members indicated no further hikes for this year.

The central bank also raised its forecasts for the next two years, projecting a fed funds rate of 4.6% in 2024 and 3.4% in 2025, up from the previous forecasts of 4.3% and 3.1% respectively.

Additionally, Fed members revised their expectations for economic growth. The Summary of Economic Projections now reflects a 1% expected gain in GDP, compared to the 0.4% estimate in March.

Officials also expressed more optimism regarding unemployment, now forecasting a year-end rate of 4.1% instead of the 4.5% estimated in March.

In terms of inflation, the central bank raised its forecast for core (excluding food and energy) to 3.9% and slightly lowered the headline forecast to 3.2%. The previous forecasts for the personal consumption expenditures price index, the central bank’s preferred inflation gauge, were 3.6% and 3.3% respectively.

– CNBC’s Jeff Cox contributed reporting.