Federal Reserve signals tighter policy through next year

The news: The Federal Reserve kept rates steady on Wednesday but stiffened its hawkish stance by signalling tighter than previously expected US monetary policy through 2024.

The numbers: The US central bank kept its policy rate steady in the 5.25%-5.50% range, but raised the prospect of another 0.25% hike this year. Its updated quarterly projections also show rates falling by only 0.5% in 2024 compared to the 1.0% of cuts anticipated at the meeting in June.

The context: The Fed now expects to get US inflation back to its 2% target in 2026, later than what some officials had thought possible. Its new projections indicate a markup of economic growth, with the US economy set to grow 2.1% in 2023 and the unemployment rate rising to just 4.1% by the year end. Ahead of the meeting, investors had been banking on significant Fed rate cuts next year, but those hopes were clouded, prompting bond yields to move higher and stocks to end lower, while the US dollar erased its losses to trade up on the day against a basket of major currencies.

What they said: "We're prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we're confident that inflation is moving down sustainably toward our objective," Fed Chair Jerome Powell said.