For the first time since rate hikes began last March the Federal Open Market Committee announced a 25 basis point hike to the federal funds rate.
- “the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent”
The Committee and Chair Powell’s comments on the big issues facing the economy…
- Inflation: The Committee did say that “inflation has eased somewhat” but did note that it remains elevated. Speaking to reports after the release Chair Jerome Powell said they are far from declaring victory. “I do think in this situation where we do have still the highest inflation in 40 years, the job is not fully done. It would be very premature to declare victory or think that we’ve really go this”
- Soft Landing. Powell is still optimistic that a soft landing is possible in this unique situation “I continue to think there’s a path to getting inflation back down to 2% without a really significant economic decline or a significant increase in unemployment…This is not like the other business cycles in so many ways”
- Rate Hikes. The Committee did not mince words. They said they are “strongly committed to returning inflation to its 2 percent objective” which means they are not done with rate hikes. “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.”
- Housing. Powell noted that housing market activity “continues to weaken, largely reflecting higher mortgage rates.” He later commented that housing service inflation is likely to continue before it begins to fall after a few months.
- Holdings: No changes here. “the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgagebacked securities, as described in its previously announced plans.”
BOTTOM LINE: Much of what Powell and the Committee said should have been expected. Many are hoping that Powell will ease up on hawkish view of rate hikes but he showed no evidence of that being the case to start 2023.