Last month, the Labor Department reported the consumer price index (CPI) rose 6.5% in December, down from a 7.1% gain in November and a 40-year high of 9.1% in June. Higher interest rates increase borrowing costs for companies and consumers, slowing the economy and weighing on corporate earnings growth. economy: Tightening monetary policy to bring down inflation without setting off a recession. The FOMC is attempting to deliver a “soft landing” for the U.S. Investors are optimistic the central bank is approaching its terminal interest rate of the current cycle-the point when it stops hiking and takes a pause-although economists anticipate at least one more rate hike in March. The FOMC has been raising interest rates since March 2022 in an attempt to bring inflation down to its 2% long-term target.įortunately, inflation has been trending steadily lower over recent months, allowing the Fed to take its foot off the gas and opt for smaller rate hikes.
The Fed also confirmed that it would continue to allow up to $60 billion in Treasury securities and $35 billion in agency mortgage-backed securities (MBS) to mature and roll off its more than $8.5 trillion balance sheet every month, another key component of its ongoing battle against inflation.Ī combination of pent-up consumer demand, supply chain disruptions and a tight labor market sent inflation soaring to 40-year highs last year. The central bank had raised rates by 50 bps in December and 75 bps at each of its previous four meetings. The 25 bps hike at the FOMC meeting on February 1 marks another deceleration in the pace of the Federal Reserve’s monetary policy tightening campaign. In a widely anticipated move, the Federal Open Market Committee (FOMC) has raised the fed funds target rate by 25 basis points (bps), to a new range of between 4.50% and 4.75%.
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