US — The US Federal Reserve has been on the spotlight on the ongoing bitter economic condition in the US. An all-time high inflation, together with the country’s tightening labor market, has put significant pressure on the US economy as it also traverses external factors such as the ongoing war in Europe, global supply chain issues, and the rising commodity prices.

For this particular Federal Open Market Committee (FOMC) meeting, most consensus predicts a radical increase of at least 50 basis points on top of the previous meetings’ rate hikes. This is to further combat the last month’s unprecedented inflation rate of 8.6%. However, this Wednesday, the US central bank reveals a grimmer decision amidst a more pessimist economic outlook moving forward.

A Bitter Decision with a Historical Significance

On Wednesday, 15th of June, the US Federal Reserve announced its largest interest rate hike in almost 30 years. Since 1994, a three-quarters of a percentage (0.75%) or 75 basis points rate increase has never been done by the US Central Bank in a single meeting until now.

The US Federal Reserve Chair, Jerome Powell, started the conference with a heartfelt message to the US general public, stating: “I will begin with one overarching message: We at the FED understand the hardship that high inflation is causing, we’re strongly committed to bringing inflation back down, and we are moving expeditiously to do so.”

He added, “We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses.” Powell stressed that the Fed would do all necessary measures, be it painful to the worsening economic growth prospect and the Financial Markets as rising rates slow down economic productivity. Thus, to mitigate the current high inflation, which has far worse economic consequences if left be — the hike has to be done. He continued, “The economy and the country have been through a lot for the past two and a half years and have proved resilient, [but] the inflation is much too high.”

Looking Ahead: Second Half of 2022 and Beyond

The US Federal Reserve’s decision hinted at continued incremental rate hikes of the same magnitude for as long as it deems “appropriate.” In addition, the agency also mentioned the continued significant reduction of its balance sheet to further adjust the country’s current tightening economic condition as fears of a possible recession next year looms.

In the FED economic projection, a quarterly report released by the agency this Wednesday, the agency expects the rate hike to lift short-term borrowing costs to a target range between 1.50% and 1.75%. Moreover, it forecasts to raise interest rates further to close at not less than 3.4% by the end of the year. This means the agency is looking to implement at least 175 basis points incrementally or an additional 1.75% spread across the four scheduled policy-setting meetings this second half of 2022. Furthermore, the Central Bank also downgraded the US economic growth to only 1.7% this year, a substantial reduction from its already lowered March forecast of 2.8%. Lastly, the consensus among the committee members suggests that inflation will continue to be above the central bank’s target of 2% until 2024, when inflation is projected to be roughly 2.2%, potentially closing the wide gap at last.