![]() ![]() ![]() Through April 2023, living costs (as measured by the Consumer Price Index) rose 4.9% over the previous 12 months, a decline of 4.2% from the peak inflation level reached in the 12-month period ending in June 2022.“Nobody knows what the terminal rate is going to be. By the closing months of 2022 and into early 2023, inflation showed signs of easing. The Fed’s actions appear to have achieved some success. Source: Federal Reserve Board of Governors. The fed funds target rate, is at its highest level since October 2007. The 0.25% rate hike in May 2023 followed similar rate increases in February and March. At subsequent meetings, the Fed greatly accelerated the pace of rate hikes, and by the end of 2022, the fed funds target rate stood at 4.25% to 4.50%. The FOMC started the “tightening” process in March 2022 by raising interest rates 0.25%. “Without price stability, the economy does not work for anyone,” says Powell. Powell says the Fed continues to “have the resolve it will take to restore price stability on behalf of American families and businesses.” He notes that price stability is a primary Fed responsibility and seems to indicate the Fed recognizes the importance of tamping down the inflation threat. 2 This so-called “quantitative tightening”, combined with higher interest rates, is designed to temper inflation by raising borrowing costs, weakening loan demand, and slowing economic growth.Ĭost of living changes, a virtual non-issue for decades, became a dominant concern for consumers in early 2021 and remains an issue today. The Fed began trimming its balance sheet of those assets, from its peak near $9 trillion. QE was aimed at providing more liquidity to capital markets. The Fed also retains its commitment to reversing a previous policy of quantitative easing (QE) that involved purchases of Treasury and mortgage-backed securities. If those issues result in reduced credit availability for consumers and businesses, that could contribute to an economic slowdown and limit the need for further Fed rate hikes. Some investors speculated additional problems in the banking sector, which can affect the availability of credit in the broader marketplace, might alter the Fed’s rate-hiking strategy. The Fed’s latest decision to raise rates came on the heels of news that a few regional banks faced financial failure. “Nevertheless, markets continue to anticipate Fed rate cuts before the end of 2023.” “The sum total of all of these comments may be to temper the market’s expectation that the Fed will begin cutting the fed funds rates before the end of the year,” says Rob Haworth, senior investment strategy director at U.S. In later May, Fed Chair Jerome Powell, commenting on the state of the economy, said “our policy rate may not need to rise as much as it would have otherwise to achieve our goals.” 1 His comment came around the same time that other Fed officials made statements indicating that more rate hikes might be required in the coming months. Yet Fed officials appear to be tempering that speculation.Īt the May meeting, the Fed signaled that it may be prepared to pause the current rate-hiking cycle. Equity and fixed income markets appear to be signaling their anticipation the Fed may be finished with rate hikes for this cycle and may even cut rates before the end of the year. At its most recent meeting, held May 2-3, the policy-making Federal Open Market Committee (FOMC) lifted its short-term target federal funds rate to a range of 5.00% to 5.25%, its tenth consecutive interest rate hike. The Fed raised short-term rates three additional times in 2023 following a series of rate hikes that began in March 2022. ![]() Find a financial advisor or wealth specialistįederal Reserve (Fed) policy actions remain a primary market focus. ![]()
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