February 1, 2023
As expected, the FOMC raised its benchmark rate by 25bp to a new range of 4.50% - 4.75%. This 25bp hike marks a step down from the December 50bp hike and from the four straight 75bp increases before that. Inflation has eased somewhat, hopefully indicating that the apparent peak is behind us, but otherwise there was not much of a change in the Fed’s take on the economy (the labor market is still extremely tight).Because of lags between rate increases and economic impact, the FOMC will need time to evaluate the effect of past hikes. Ongoing rate increases will be appropriate and restoring price stability will likely require maintaining a restrictive stance for quite some time. The FOMC is not looking for rate cuts on the horizon for now.Rates and Market:
- Fed Funds Target: 4.50%-4.75%
- Market Reaction: Although pre-announcement, interest rates were flat-to-down ~4bp out to 10 years, both rates and equities have since rallied given the “less hawkish” perception during Chairman Powell’s presser that followed the statement release. Interest rates are now down ~12bp and equites have reversed their -1/2 to -1 percent decline into a rally of flat-to-up ~1%.
The FOMC announced the following actions and analysis:
- Unanimous policy vote in line with market expectations
- The Fed anticipates more rate hikes to come, the extent of which is dependent on numerous factors including cumulative tightening of monetary policy.
- The Fed noted that inflation “has eased somewhat but remains elevated,” a shift from its previous statement which simply noted that inflation remains “elevated.”