Fed Sets Up a Double-Down on Inflation and Raise Rates Again

Federal Reserve officials confirmed their commitment to combating inflation during their December meeting. They also indicated that interest rates could still remain high for them “some time” Until there’s clear evidence that consumer price drops,

Minutes from the U.S. central banks’ Dec. 13-14 meeting, released on Wednesday, showed that policymakers were worried that investors could misinterpret them as saying they had ended their campaign to control inflation. Fed officials said that the smaller rate hike – 50 basis points, compared to the previous four 75-basis-point increases – “was not an indication of any weakening” We warned about the risk of inflation.

Although inflation is showing signs of slowing down, it still remains stubbornly high. The Consumer Price Index rose by 7.1% in November compared to the previous year. This is a decrease from 9.1% recorded in June, but it’s still three times higher than the pre-pandemic average. Minutes reveal that officials will not allow inflation to rise for too long, even if this means higher unemployment or slower economic expansion.

“Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time,” The minutes were spoken. “In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy.”

US ECONOMY FACES TURBULENT 2023 AS RECESSION FEARS GROW

Jerome Powell, Federal Reserve Chair (Olivier Doliery/AFP via Getty Images/File / Getty Images

The half-point increase, the seventh straight hike in 2022, pushed the federal funds rate to a range of 4.25% to 4.5% — the highest since 2007.

“The Fed minutes are a good reminder for investors to expect rates to remain high throughout all of 2023,” Mike Loewengart (head of Morgan Stanley Global Investment Office model portfolio construction) said. “Amid a persistently strong job market, it makes sense that fighting inflation remains the name of the game for the Fed.”

He said, “Bottom line is that even though we flipped the calendar, the market headwinds from last year remain.”

Fed officials also outlined an aggressive path for rate increases in 2023, in addition to the rate hike. According to the Federal Open Market Committee’s dots plot of individual member’s expectations, policymakers expected rates to rise to 5.1% by 2023 according to their economic projections. This is a much higher level than the 4.6% rate they last predicted in September.

Officials indicated that the U.S. will see a slowing in economic growth next year, and that the unemployment rate would rise to 4.6%. Rate hikes are threatening to bring the country to the brink. recession. The Fed anticipates that the unemployment rate will remain high in 2024-2025, as higher rates continue to drive up borrowing costs.

His press conference following the meeting was held last month. Fed Chairman Jerome Powell Recognized the need for more work by the central bank to tackle inflation.

“We still have some ways to go,” He told reporters. “We will stay the course until the job is done.”

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