Although the economy is showing signs of slowing down, inflation has remained higher than expected.
- As anticipated, the Federal Reserve (Fed) increased the federal funds rate by 75 basis points (bps).
- Fed officials reiterated their commitment to bringing inflation down to their 2% target.
- The Fed indicated that although the economy is showing signs of slowing down, inflation has remained higher than expected.
- This increase in the federal funds rate takes the rate to 3.75%-4.00% with a total increase of 375 basis points since the beginning of 2022.
As anticipated, the Fed announced its fourth consecutive rate hike of 75 bps at the Federal Open Market Committee (FOMC) meeting on November 2, keeping with its aggressive efforts to curtail inflation.
This latest bump brings the cumulative increase year to date to 375 bps and the federal funds rate target to 3.75%-4.00%, the highest level since January 2008. It is the sixth interest rate hike since March 16, when the Fed’s tightening cycle commenced.
“The Fed is expected to continue raising interest rates at least one more time this year, and then one to two more increases next year. During its December FOMC meeting, we expect the Fed to increase the federal funds rate by another 50 basis points, and then two more 25 basis point increases in February and March of 2023,” said Raymond James Chief Economist Eugenio J. Alemán, Ph.D.
A key takeaway from the November meeting is this excerpt, which alludes to a potential slowing of the level of interest rate increases: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”