Fed Unanimously Supports 25 Basis Point Interest Rate Hike to 4.5-4.75%
Today, the Federal Reserve released minutes from its January 31-February 1 meeting that indicate near unanimous support for a 25 basis point interest rate hike, although a few members favored a 50 basis point increase. The move, which took the federal funds rate to a target range of 4.5%-4.75%, was the smallest hike since the first of this tightening cycle in March 2022.
The minutes noted that “all participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee’s objectives.” “A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount,” the minutes read.
Inflation “remained well above” the Fed's 2% target, the minutes stated, with labor markets “remaining very tight, contributing to continuing upward pressures on wages and prices.”
St. Louis Fed President James Bullard recently said the US central bank must bring the federal funds rate to a range of 5.25% to 5.5% in order to bring inflation back down to its 2% target. At the last meeting, both Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard expressed their support for a 50 basis point rate increase.
The Fed wants to see “substantially more evidence of progress across a broader range of prices…to be confident that inflation was on a sustained downward path” and let its foot off the gas on interest rates. Markets have continued to rally since the meeting, as traders predict a coming end to the Fed’s tightening campaign.
A number of Fed officials stated that the potential risks to the economic outlook appeared to be more evenly distributed, implying that inflation was no longer the primary concern. Analysts generally consider that the Federal Reserve will increase the federal funds rate again and will maintain it above 5% until the year 2023 ends–possibly beyond that.
0. “Fed minutes show members resolved to keep fighting inflation with rate hikes” CNBC, 22 Feb. 2023, https://www.cnbc.com/2023/02/22/fed-minutes-february-2023-minutes-show-fed-members-resolved-to-keep-fighting-inflation.html
1. “FOMC members wanted the Fed to hike rates by 50 basis points last month” Washington Examiner, 22 Feb. 2023, https://www.washingtonexaminer.com/opinion/fomc-members-wanted-the-fed-to-hike-rates-by-50-basis-points-last-month
2. “February Fed Minutes: Rate Hikes To Continue” Forbes, 22 Feb. 2023, https://www.forbes.com/advisor/investing/fed-minutes-fomc
3. “Fed minutes: ‘Ongoing' rate hikes needed, 2 officials wanted 50-point hike” Yahoo News, 22 Feb. 2023, https://news.yahoo.com/fed-minutes-ongoing-rate-hikes-needed-2-officials-wanted-50-point-hike-195355428.html
4. “Fed officials back ongoing rate hikes to quell above-target inflation: Fed minutes By Investing.com” Investing.com, 22 Feb. 2023, https://www.investing.com/news/economy/fed-officials-back-ongoing-rate-hikes-to-quell-abovetarget-inflation-fed-minutes-3010959
5. “Fed Officials See Peak in Interest Rates This Year, FOMC Minutes Show” Barron's, 22 Feb. 2023, https://www.barrons.com/articles/fed-meeting-minutes-release-today-b19c6099
6. “Fed minutes show some officials thought easing of financial conditions could necessitate tighter monetary policy” MarketWatch, 22 Feb. 2023, https://www.marketwatch.com/story/fed-minutes-show-some-officials-thought-easier-financial-conditions-could-mean-tighter-monetary-policy-bf431e25
7. “US Dollar Rallies as Fed Minutes Point to More Hikes amid Upside Inflation Risks” DailyFX, 22 Feb. 2023, https://www.dailyfx.com/news/us-dollar-rallies-as-fed-minutes-point-to-more-hikes-amid-upside-inflation-risks-20230222.html
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