RALEIGH – The Federal Reserve Open Market Committee decided to increase the target range for the federal funds rate to 4.25-4.5% today, as many analysts and economists expected.
That’s an increase of 50 basis points, or one-half percent, since the Federal Reserve increased the target rate to a range of 375-400 basis points at the November 2022 meeting.
And, the Federal Reserve has increased interest rates by a historic 4.25% this calendar year, which Jerome Powell, the Chairman of the Federal Reserve mentioned during a press conference on Wednesday.
“We will stay the course until the job is done,” said Powell, noting that the Federal Reserve will “do everything” in order to hit its targets and goals.
Powell added that even though the Open Market Committee decided to increase the target federal funds rate by 50 basis points, even an increase of that amount is historic, based on previous actions taken by the Federal Reserve prior to this year.
Ultimately, the decision on how high to raise rates, and at what pace, will be in response to the economic data, said Powell, adding that a more important question might be how long rates will remain at their terminal level rather than how fast the Fed would move the target rate to that level.
“We think the appropriate thing to do is to move at a slower pace,” said Powell.
What this means for NC
“The expected continued rise in interest rates does impact business decisions, especially about new investments,” said Dr. Michael Walden, an economist and a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University. “A higher borrowing rate means investors need a higher rate of return to be profitable.”
Rate hike, as expected
Still, this rate increase was what most expected. As of 1:54 p.m. on Wednesday, just before the Federal Reserve issued a statement, the CME Fed Watch Tool showed a 79.4% probability of a 50-basis-point increase.
In the statement, the Federal Reserve noted that recent indicators “point toward modest growth in spending and production” while job gains have been “robust” with low unemployment in the U.S. economy.
Still, though, the statement notes that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
The statement also noted that the Federal Reserve Open Market Committee is “highly attentive to inflation risks” despite inflation dropping, a bit, year-over-year, in the most recent Consumer Price Index data.
The statement reads:
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 4-1/4 to 4-1/2 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 pace 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 the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. 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 public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.