WASHINGTON, DC, November 2, 2022—The U.S. Federal Reserve raised interest rates Wednesday by 75 basis points for the fourth straight meeting while hinting at a potential slower pace in the future as the central bank continues to try to tame multi-decade highs in inflation.
“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 policy statement said, adding that the central bank expects further rate hikes at some level will be appropriate to attain a level that is “sufficiently restrictive” to get inflation back down to its 2% goal.
“No surprise here,” Advisors Capital Management Partner JoAnne Feeney told Yahoo Finance Live about the decision. “Growth is moderating, and I think that might suggest to the market that the end might be in sight for rate increases.”
The rate hike brings the central bank’s policy rate, the federal funds rate, to a new range of 3.75% to 4% — its highest level since 2008 — from a current range between 3% and 3.25%.
Four 75-basis-point rate hikes in a row is unprecedented since the Fed explicitly started targeting the federal funds rate to conduct monetary policy in the late 1980s. This brings the Fed Funds Rate to a level not seen since the end of 2007. The vote was unanimous.
The Fed still views inflation as high on account of imbalances in demand and supply from the pandemic, higher food and energy prices and broader price pressures. Officials see the job market as strong, pointing to “robust job gains” and a low unemployment rate.
Official measures of inflation aren’t easing as quickly as officials might hope with prices still rising at a hot pace. The Fed’s preferred measure of inflation, core PCE — defined as the price consumption expenditures index (PCE) excluding volatile food and energy prices — rose by 5.1% in September and 6.2% on a headline basis. That’s down from 7% but still far from the Fed’s 2% inflation target. Overall, the consumer price index (CPI) rose by 6.6% in September, accelerating from 6.3% in August and 5.9% in July.
The Fed estimates interest rates will need to rise to 4.6% next year to bring inflation down toward the central bank’s 2% goal. Once the policy rate reaches what the Fed feels is a sufficiently restrictive level, they would maintain that level for “some time” until there was “compelling” evidence that inflation was on course to return to 2%.
Higher rates are good for banks and other entities like insurance companies, brokerage firms, and money managers generally benefit from higher interest rates. But, due to inflation, the trouble is that necessitates— higher rates can harm bank customers.
As a result of the Federal Reserve increases, the result is investors earnings will grow at a slower rate than investors anticipate. This has a ripple effect across all sectors of the stock market.
“Despite low economic growth rates, investors can benefit from inflation if they hold the correct stocks and commodities in their portfolios.”
Source: Yahoo News wrote the original article, Bee News Daily contributed.