Rate Raise – The Fed’s Highest Interest Rates
The Federal Reserve has raised its benchmark interest rate to the highest level in 15 years, indicating that the fight against inflation is not over. The rate-setting Federal Open Market Committee voted to increase the overnight borrowing rate by half a percentage point, taking it to a targeted range of 4.25-4.5%. This move broke a streak of four consecutive hikes of three-quarter points, the most aggressive policy moves since the early 1980s. Along with the increase came an indication that officials expect to keep rates higher through next year, with no reductions until 2024. The expected “terminal rate,” or point where officials expect to end the rate hikes, was put at 5.1%, according to the FOMC’s “dot plot” of individual members’ expectations. This level marks the highest the Fed funds rate has been since December 2007, just ahead of the global financial crisis.
Despite some promising signs lately, the Fed’s decision to raise rates indicates that officials are still concerned about the potential for inflation. The increase in rates is part of the central bank’s efforts to take money out of the economy and reduce demand, ultimately helping to lower prices. While recent reports have shown progress in the fight against inflation, readings remain well above the Fed’s target of 2%. The Fed’s rate hike could hurt the economy, but officials believe it is necessary to combat high inflation. It remains to be seen how the economy will respond to the increase in rates and whether it will be enough to bring inflation under control.
What do you think about the hike in rates? How do you think it will affect the first quarter of 2023?
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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.