Fed raises interest rates to highest level since 2008

Yahoo Finance’s Jennifer Schonberger joins the Live show to recap Wednesday’s FOMC meeting.

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JULIE HYMAN: Of course, all of this on the back of the Federal Reserve rate decision and press conference yesterday, the reaction to that rate hike both here in the US and around the globe, as we've been talking about. Our Jennifer Schonberger is down there in DC. She's been on the ground following the Fed decision. So just sum it up for us, Jen, what we heard from the Fed yesterday.

JENNIFER SCHONBERGER: Hey, there. Good morning, Julie. That's right, the Federal Reserve raised their benchmark interest rate by 3/4 of a percentage point for the third time in a row and signaled more hefty rate hikes are in store for the balance of this year, even if it could usher in a recession. The Fed funds rate now stands in a range of 3% to 3 and 1/4%. That is the highest level since 2008.

Officials expect to raise rates higher and hold them there longer than before. The Fed expects to raise rates to 4.4% by the end of this year and 4.6% next year. That tees up another 125 basis points of tightening this year, 25 basis points more than the market was expecting, and could auger for another 75 basis point rate hike at the next meeting in November.

Now, Fed Chair Powell doubled down on the central bank's commitment to quell inflation. Powell said that the Fed has just gotten to restrictive policy stance and that they need to get to a, quote, "more meaningfully restrictive policy stance and maintain that for some time until inflation comes down." He reiterated it would be a mistake to loosen prematurely. Take a listen.

JEROME POWELL: My main message has not changed at all since Jackson Hole. The FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.

JENNIFER SCHONBERGER: Powell said that a soft landing, essentially where the economy would avoid a recession with all these interest rate hikes, would be very challenging and would depend on how quickly price pressures come down. The Fed is projecting the economy will teeter on the cusp of contraction this year, only growing 2/10 of a percent this year before rebounding to 1.2% growth next year and 1.7% after that. The Fed sees unemployment rate rising to 4.4% next year, which is 7/10 of a percent higher than the current unemployment rate.

Powell says if the economy actually follows the Fed's projections, that would be a good outcome, implying that perhaps the Fed is a bit overly optimistic here. A longtime Fed follower Roberto Perli over at Piper Sandler says there has never been a situation when the unemployment rate rose more than about half a percent without the economy entering recession. So the FOMC forecast perhaps, is an implicit admission that a recession is likely unless something extraordinary were to happen.