WASHINGTON–As widely expected, despite indicators of cooling inflation the Federal Reserve’s Open Market Committee has voted to boost interest rates another 50 basis points, bringing its target range to decided to raise the target range for the federal funds rate to 4.25%--4.50%, and indicated the increases will continue.
“Recent indicators point to modest growth in spending and production,” the Fed said in a statement. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
“Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are contributing to upward pressure on inflation and are weighing on global economic activity,” the statement continued. “The Committee is highly attentive to inflation risks.”
In its statement following the conclusion of two days of meetings, the FOMC said it anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.
Following ‘The Plan’
“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,” the Fed said. “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the ‘Plans for Reducing the Size of the Federal Reserve's Balance Sheet’ that were issued in May.”
Unanimous Vote & Dot Map
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lael Brainard; James Bullard; Susan M. Collins; Lisa D. Cook; Esther L. George; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller.
NAFCU: May Hit 'Pause Button'
"The FOMC’s updated projections reflect much greater concern over hot wage growth readings recently than relief at moderating inflation," said NAFCU Chief Economist and VP-Research Curt Long. "With the median committee member anticipating a 5.1 percent fed funds rate at the end of 2023, we are likely to see 25-basis point hikes at each of the next two meetings. However, if at that point price pressures are still ratcheting down, Fed officials are likely to hit the pause button on rate hikes earlier than they currently anticipate."
CUNA: Unemployment to Rise
“The FOMC signaled more interest rate increases for next year than previously thought. This is contrary to what markets were expecting based on recent consumer price index reports," said CUNA Senior Economist Dawit Kebede. "There are signs that inflation is cooling down as gas prices decrease, supply chain conditions improve, and consumers demand shifted back to services from goods. However, prices are elevated relative to the Federal Reserve's target.
“High interest rates are weighing on the economy, slowing down investment activity," he continued. "Declines in housing and business investment were a major drag during third-quarter economic activity. The labor market is currently strong but the Federal Reserve projects unemployment to rise to 4.6% by next year. Historical data indicates such a large increase in unemployment within a year period signals the beginning of a recession.”
In announcing the increase, the Fed also released numerous accompanying charts, including its so-called “dot map,” below, which indicates what various members of the FOMC are thinking