Fed delivers another big rate hike; Powell vows to 'keep at it'
By Howard Schneider and Ann Saphir
WASHINGTON (Reuters) -Federal Reserve Chair Jerome Powell vowed on Wednesday that he and his fellow policymakers would "keep at" their battle to beat down inflation, as the U.S. central bank hiked interest rates by three-quarters of a percentage point for a third straight time and signaled that borrowing costs would keep rising this year.
In a sobering new set of projections, the Fed foresees its policy rate rising at a faster pace and to a higher level than expected, the economy slowing to a crawl, and unemployment rising to a degree historically associated with recessions.
Powell was blunt about the "pain" to come, citing rising joblessness and singling out the housing market, a persistent source of rising consumer inflation, as being likely in need of a "correction."
Earlier on Wednesday, the National Association of Realtors reported that U.S. existing home sales dropped for a seventh straight month in August.
The United States has had a "red hot housing market ... There was a big imbalance," Powell said in a news conference after Fed policymakers unanimously agreed to raise the central bank's benchmark overnight interest rate to a range of 3.00%-3.25%. "What we need is supply and demand to get better aligned ... We probably in the housing market have to go through a correction to get back to that place."
That theme, of a continuing mismatch between U.S. demand for goods and services and the ability of the country to produce or import them, ran through a briefing in which Powell stuck with the hawkish tone set during his remarks last month at the Jackson Hole central banking conference in Wyoming.
Recent inflation data has shown little to no improvement despite the Fed's aggressive tightening - it also announced 75-basis-point rate hikes in June and July - and the labor market remains robust with wages increasing as well.
The federal funds rate projected for the end of this year signals another 1.25 percentage points in rate hikes to come in the Fed's two remaining policy meetings in 2022, a level that implies another 75-basis-point increase in the offing.
"The committee is strongly committed to returning inflation to its 2% objective," the central bank's rate-setting Federal Open Market Committee said in its policy statement after the end of a two-day policy meeting.
The Fed "anticipates that ongoing increases in the target range will be appropriate."
GROWTH SLOWDOWN
The Fed's target policy rate is now at its highest level since 2008 - and new projections show it rising to the 4.25%-4.50% range by the end of this year and ending 2023 at 4.50%-4.75%.