U.S. Federal Reserve Raises Interest Rates Amid Inflation Concerns: Chairman Powell Discusses Decision and Future Outlook

Following a two-day meeting, the U.S. Federal Reserve Federal Open Market Committee (FOMC) announced this afternoon that they decided to raise the target range for the federal funds rate to 5.25-5.5%. The statement following the announcement stated recent economic indicators show moderate expansion in economic activity with robust job gains and a low unemployment rate. However, inflation remains high. The U.S. banking system is considered sound and resilient. Tighter credit conditions may affect economic activity, hiring and inflation, and the Committee is closely monitoring inflation risks.

The Committee’s primary goals are maximum employment and 2% inflation over the longer term. To support the Committee’s longer-term inflation target, they decided to raise the federal funds rate by 25 basis points to the new target range of 5.25-5.5%. The Committee will continue to evaluate economic data and its implications for monetary policy by considering various factors, including the cumulative tightening of policy, lags in policy effects and economic and financial developments.

In their assessments, the Committee will consider incoming information related to the economic outlook, labor market conditions, inflation pressures, inflation expectations and international developments. The Committee is prepared to adjust monetary policy to overcome potential risks hindering their goals, if necessary.

After making the decision to increase the rate and set a new target range, Chairman Jerome Powell conducted a news conference to elaborate on the Committee’s thought process behind their choice. Chairman Powell reaffirmed the Central Bank’s focus on its dual mandate: promoting maximum employment and stable prices. He added that, despite robust job gains and a low unemployment rate, inflation remains high, resulting in difficulties for Americans. As Chairman Powell has emphasized in earlier press conferences, the Fed’s priority is to return inflation to 2%, which may require below-trend growth and some softening in the labor market. Restoring price stability is crucial for achieving maximum employment and stable prices in the long run. Regarding future rate increases in the coming months, the Chairman repeated that further increases would be data-dependent. Outside of the housing markets and some business activities, he suggested the full impact of the past rate hikes was partially felt.

Many analysts expect the Central Bank to reverse the interest rate policy and start cutting rates in 2024. Chairman Powell indicated in the press conference rates would remain high and not expect a change in policy until 2025 unless the data suggest otherwise.   





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Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

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