The Federal Reserve announced that it is raising the interest rate by 75 basis points for the third straight month as it tries to clamp down on inflation. The move brings the base rate to a range of 3%-3.25%, the highest it has been since 2008.
Fed officials indicated that more rate hikes would be coming before the end of the year, with the goal of bringing the benchmark rate to a range of 4.4%. They also indicated that they expect to raise the rate to 4.6% in 2023.
Federal Reserve Chairman Jerome Powell did note that evidence is showing inflation is starting to slow and suggested the pace of increases will eventually slow down.
“We will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2%. We anticipate that ongoing increases in the target range for the federal funds will be appropriate,” Powell said in remarks after the rate hike was announced. “At some point as the stance of policy tightens, it will be appropriate to slow the pace of increases while we assess how our policy adjustments affect the economy.”
While stocks initially dipped on the news, they quickly rebounded, with the Dow Jones Industrial Average moving into the black in mid-afternoon trading. The S&P 500 and the Nasdaq were also slightly ahead after the rate hike was announced.
After Powell finished speaking, investors’ sentiments soured, and they began selling off stocks, causing all three indexes to drop into the red.
The Dow Jones closed down 522 points, while Nasdaq shed over 200 points, and the S&P 500 finished the day down by 66 points.