The Federal Reserve increased the interest rate during its meeting in January by a quarter percentage point, bringing the current interest rate range to 4.5% to 4.75%.
Early in March, Fed Governor Christopher Waller stated that if a recent pattern of unusually robust job growth, consumer expenditure, and inflation persists, interest rates may be raised higher than anticipated.
Anything you need to know about the most recent Fed meeting, when it is, why the Fed raises interest rates, and what it implies for inflation is provided below.
next Federal Reserve gathering
The following Federal Reserve meeting is slated for March 21–22, 2023, from Tuesday to Wednesday.
The most recent Fed gathering took place from January 31 to February 1. In order to reflect the fact that the historic inflation increase is receding, the interest rate was raised by a quarter percentage point.
The Fed raises interest rates for what reasons?
As the country’s central bank, the Fed is in charge of setting monetary policy. This indicates that the Fed regulates the money supply and sets interest rates.
The promotion of “maximum employment and stable pricing in the US economy” is its dual purpose. With its long-term annual target set at 2%, the Fed attempts to control inflation in order to maintain stable prices.
The federal funds rate, which is what banks charge one another for overnight loans, is one of the key instruments the Fed uses to keep inflation under control. In general, banks pass on their increased costs if that rate increases.
Although the Fed does not directly regulate all interest rates in the nation, when it rises the fed funds rate, other interest rates, such as those on adjustable-rate mortgages, credit cards, home equity lines of credit, and other loans, soon follow.
Inflation: What is it?
Gas, rent, and food are just a few examples of the various commodities and services that are affected by inflation, which is a generalised increase in price.
There are a number of things that can contribute to it, like an increase in the number of individuals spending money on products or services that are in short supply. So, producers and service providers can raise prices without having to worry about suffering a sizable decline in sales.
A lack of supply may also be the cause of inflation. A manufacturer’s or retailer’s wholesale costs may rise if there aren’t enough products to satisfy demand for a good or service. These higher costs would then be passed on to customers in the form of higher retail prices.
Since 2022, how many times has the Fed hiked interest rates?
Last year, the Fed increased interest rates seven times. Rates had been remained close to zero due to the pandemic’s shutdown of the economy when the Fed raised them by 0.25 percentage point in March 2022. It had been more than three years since the last hike.
The Fed’s key rate was raised to a range of 3.75% to 4.00% after the second hike, this time by 0.50 percentage points, which occurred in May. Further increases of 0.75 percentage points then occurred in June, July, September, and November.
The range increased by 0.5 points in December, making it 4.25% to 4.5%. With the most recent rise in January, the current range now stands at 4.5% to 4.75%.
Is a decline in inflation forecast?
There are some signs that inflation is slowing down.
The most generally used inflation indicator, the consumer price index, revealed that overall prices increased 6.5% from a year earlier in December, down from a four-decade high of 9.1% in June.
The economy is, however, slowing down a bit. The past three months have seen a decline in job growth from the previous quarter’s average monthly pace of 366,000 to 247,000. Furthermore, late last year saw a decline in company investment and retail sales.
Even in the absence of significant Fed rate rises, economists had anticipated that inflation would moderate as supply-chain bottlenecks dissipate, commodity prices decline, import costs are reduced by a strong dollar, and retailers give discounts to clear out bloated inventory.