Another Day, Another Hike – Fed Raises Interest Rates
A highly anticipated day has come, as the Federal Reserve has decided the tone they will set for the new year. Following the Fed’s previous 50 basis point raise in December, they have now started the year with what most had suspected: a quarter percentage point hike. Markets seemed pleased with the confirming news, as each major index rose just following the press release. What was more interesting, however, was what was said by Jerome Powell in the meeting following the release. As everyone was fairly certain the Fed will increase interest rates by 25 basis points, people were more so wondering exactly when the Federal Reserve will pause rate hikes and begin to cut this year. Currently, there are several varying economic data points that Powell believes signal a stubborn persistence in inflation. For one, unemployment levels are at a 50-year record low, with job pay rates continuing to remain quite high.
Powell also continued the meeting to state another factor contributing to their prolonged tightening cycle; this is core services excluding housing, which has not yet experienced any sign of disinflation. With the labor market and other issues in mind, Powell remained silent in saying whether the Fed will pause rate hikes after March, leaving the Federal Funds rate at a relatively high 4.75% to 5.00%. He did, however, hint at the chance of having no rate cuts during 2023, as the Fed is still quite far away from achieving its desired 2% level of inflation. Regardless, investors still seemed pleased with the results, however, several analysts’ also claim that a year of high-interest rates can increase the chances of a recession greatly.
Want to learn how to invest? Download the Invstr app, where you can play Fantasy Finance and manage a virtual investment portfolio or open a brokerage account and invest for real. Take our interactive investing course on Invstr Academy and become a better investor today!
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.