Fed Funds Rate Raised 25 Basis Points to A 4.50% - 4.75% Target, Says It Still Sees Need for “Ongoing Increases”

The Federal Reserve has raised the Fed Funds target rate by 25 basis points to a target of 4.50% to 4.75%. Like the Fed’s six moves in 2022, today’s Fed move was very well telegraphed by Chairman Jay Powell. However, unlike each of the Fed’s five previously moves that were either 50 or 75 basis points, today’s move represents a raise in he target rate o only 25 basis points.

The Fed also states that it continues to see the need for “ongoing increases” in the Fed Funds rate, indicating that it may still not be near the end of its hiking cycle.

The prospect of slower moves had lead market participants to believe that the Fed’s hawkish tone is ending, with perhaps one further 25 basis point increase after this February 2023 move, and that the Fed would be already acting to lower rates by this time in 2024. That looks less likely now that the Fed is projecting ongoing increases.

The challenge here is quite evident. While some observers can manipulate inflation measurements to show that it has brought inflation under control, you would need to be living in a shell not to realize that sellers of most goods or services with pricing power can continue to gouge their customers.

Hence, the logic applied by many economists is that by its very nature, heightened inflation caused by long periods of tremendous liquidity can only be brought under control only by raising rates to the point where they reigning in the economy and perhaps even cause a recession.

If this logic holds true, several more Fed increases will be coming still. And, it is possible that the fact that the markets have yet to respond adversely to the Fed’s hawkishness will give the Fed further leeway to move further and longer than market participants are projecting.

Consumers should continue to protect themselves through seeking the best savings and money market rates and also keep a close eye on sort-term CD rates.