The Federal Reserve raised its benchmark interest rate for the seventh time this year and lifted its forecast for the level to which it plans to take the Fed Funds rate as it continues to worry that inflation remains imbedded in the world's biggest economy.
The Fed lifted its Fed Funds rate by 50 basis points to a range of 4.25% to 4.5%, the highest since 2008, and said ongoing be needed in order to combat the fastest inflation in nearly four decades.
The so-called Dot Plots, which illustrate the views of the Fed's eighteen member rate-setting committee, indicate a terminal Fed Funds rate of around 5.1% by the spring, a level that it plans to hold until the end of the year.
The central bank also issued fresh economic projections that suggest modestly firmer growth prospects for the next two years, although the unemployment rate is expected to rise to around 4.6% by the end of next year.
"The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time," the Fed statement read. "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."
U.S. stocks turned lower following the Fed decision, with the Dow Jones Industrial Average trading 160 points in the red and the S&P 500 falling 25 points. The tech-focused fell 95 points as Treasury yields jumped.
Benchmark 10-year Treasury note yields rose 4 basis points to 3.545% while 2-year notes rose to 4.264%.
The U.S. dollar index, meanwhile, was marked 0.06% lower at 103.920 in the wake of the Fed announcement and prior to Powell's press conference in Washington.
Markets are pricing in an 80% chance that the Fed will hike rates by another 25 basis points in February, extending the most aggressive tightening cycles since the Paul Volcker era of the early 1980s.
The collective impact of rate hikes, however, has been mixed: consumer price inflation slowed notably in November, with headline CPI falling for five consecutive month and core prices rising at the slowest annual rate in nearly two years, but factory gate inflation continues to percolate and the historically-tight job market has continued to deliver persistent wage growth.
At the same time, Treasury bond yields continue to flash recession warnings, with benchmark 10-year Treasury note yields easing modestly to 3.499% in overnight trading, a level that is around 70 basis points south of 2-year notes in what is known as an 'inverted yield curve'.
According to a study from the San Francisco Federal Reserve, a sustained inversion has preceded all of the nine recessions the U.S. economy has suffered since 1955, making it an extremely accurate barometer of financial markets sentiment.
