The Fed raised the target for its federal funds rate by 75 basis points on July 27, to a range of 2.25% to 2.50%, and said such an “unusually large” rate increase may be appropriate again in September to bring inflation under control.
• Vanguard expects the Fed to increase its federal funds rate target to a range of 3.25% to 3.75% by the end of the year, from a target of 0% to 0.25% at the start of the year.
• We continue to expect a terminal rate of at least 4% in 2023 to get inflation under control. That would put the policy rate well above the Fed’s assessment of the neutral rate, which Fed Chair Jerome Powell said was around the Fed’s new rate target. (The neutral rate is the theoretical monetary policy rate that would neither stimulate nor restrict economic activity.)