In its continued effort to fight inflation, the Federal Reserve raised the federal funds target rate another 75 basis points mid-September. This is the third consecutive increase of 75 basis points.

The large hikes are sending shockwaves through the financial markets and the overall economy. Federal Reserve officials have now hinted at plans to continue tightening monetary policy and keeping it tight for years to come.

“We anticipate that ongoing increases will be appropriate. We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%,” said Federal Reserve Chair Jerome Powell.

The Fed gave indicators that the target for the federal funds rate could potentially increase by 75 more basis points in November, 50 points in December and concluding with 25 points at the start of 2023.

“Reducing inflation is likely to require a sustained period of below-trend growth, and there will very likely be some softening of labor market conditions,” said Powell. “Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.”

The 30-year fixed mortgage rate climbed over 7% in September. The expected additional tightening from the Fed is expected to take this rate higher before the end of the year.

Along with that, the Fed predicts GDP growth slowing to 0.2% for 2022, rising slightly in the following years to a longer-term rate of just 1.8%. The revised forecast is a sharp cut from the 1.7% estimate in June and comes following two consecutive quarters of negative growth, a commonly accepted definition of recession.

“Despite the slowdown in growth, the labor market has remained extremely tight, with the unemployment rate near a 50-year low, job vacancies near historical highs and wage growth elevated,” said Powell.

The Fed expects the unemployment rate to rise to 4.4% by next year from its current 3.7%.

“The labor market continues to be out of balance, with demand for workers substantially exceeding the supply of available workers. The labor force participation rate showed a welcome uptick in August but is little changed since the beginning of the year,” said Powell. “[Federal Open Market Committee] participants expect supply and demand conditions in the labor market to come into better balance over time, easing the upward pressure on wages and prices.”