The U.S. Federal Reserve on Wednesday decided to raise its benchmark interest rate by 0.5 percentage point, a smaller move than the previous four hikes, but signaled more increases are to come as it continues to battle high inflation.
Upon concluding a two-day meeting of the policy-setting Federal Open Market Committee, the central bank said it will lift its target range for the federal funds rate to 4.25 to 4.50 percent, as widely expected. Policymakers, meanwhile, raised their projection that the rate will be at around 5 percent by the end of next year.
"The committee anticipates that ongoing increases in the target range will be appropriate" to bring down inflation to the goal of 2 percent over time, the central bank said in a statement.
The latest rate hike, which ends a series of huge 0.75-point increases that started in June, came amid signs that inflation is easing, with November's consumer price index increasing 7.1 percent from a year before to make a fifth straight month of slowdown.
Fed Chairman Jerome Powell told a press conference that he is seeing "a welcome reduction in the monthly pace of price increases" but "it will take substantially more evidence to give confidence that inflation is on a sustained downward path."
"In determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the Fed said in its statement.
In the new economic projection unveiled the same day, the Fed expected the benchmark borrowing rate to come to 5.1 percent at the end of 2023 before falling to 4.1 percent in 2024, compared with September projections of 4.6 percent and 3.9 percent, respectively.
U.S. gross domestic product is forecast to increase a real 0.5 percent in the fourth quarter of 2022 from a year earlier, revised upward from the 0.2 percent expansion estimated in September. The economy is then estimated to grow 0.5 percent next year.
The unemployment rate is projected to be 3.7 percent at the end of 2022, down 0.1 point from the previous forecast, and 4.6 percent in 2023.
Inflation -- gauged by the price index for personal consumption expenditures -- is expected to rise to 5.6 percent by the end of 2022 from a year before, an upward revision from the earlier forecast of a 5.4 percent increase, before slowing to 3.1 percent in 2023.
The Fed has been showing its determination to continue tightening its monetary policy to tamp down inflation, even at the cost of slower growth.
Facing the highest inflation in about 40 years on the back of Russia's war in Ukraine which began in February, the Fed started lifting the target range for the federal funds rate the following month after keeping interest rates near zero to support the coronavirus pandemic-hit economy.
In the June meeting, the Fed decided on its largest rate hike since November 1994, moving ahead with a 0.75 point increase. It then approved rate hikes of the same size at its July, September and November meetings.
When raising interest rates, the U.S. central bank usually moves the figure by 0.25 point at a time.
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