The Fed Raises Rates Again

February 1, 2023
Tim Hardin
Biden Administration, Federal Reserve, Interest Rates

Today, the Federal Open Market Committee released the minutes from their most recent meeting. The most significant news was that they hiked the interest rate by 25 basis points to give us a total federal rate of 4.5% (up from 4.25%). This was a continued effort by the Fed to rein in the 40-year high inflation rate of roughly 9%.

We have seen a steady decline in inflation over the last few months, but it still remains remarkably high. Many people expected that the Fed might be more dovish due to the rate of decrease in inflation, but that simply was not the case. They have stayed the course in raising rates to slow the economy and put deflationary pressure on the economy.

The FOMC put out the following statement today:

Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated.

Russia’s war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent. 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 percent over time. In determining the extent 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. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

In the statement, the FOMC made it clear that they will continue to raise rates, likely by 25 basis points each meeting going forward until they are satisfied that rates are high enough to produce the goal of returning to 2% inflation. The next major event will be release of CPI data that gives us updated numbers on inflation.