The US Fed’s December FOMC meeting minutes provided fresh insight into how members of the policymaking committee view the bank’s probable endgame and the direction the federal funds rate may take in the next weeks or months. On January 4, 2023 at 2 p.m. in Washington, the US Fed released the minutes of its meeting from December 13–14.
According to minutes from the Federal Reserve’s December meeting, officials are dedicated to combating inflation and anticipate that higher interest rates will stay in place until more progress is made. Further, no FOMC members expect rate cuts in 2023.
Even though inflation in November was lower than it was in October and in prior months, the Fed is nonetheless concerned about core inflation.
As of November the personal consumption expenditures price index, the Fed’s favoured inflation indicator was still rising at a rate of 5.5% annually, exceeding the 2% objective set by the U.S. central bank.
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After the Federal Open Market Committee’s meeting on December 13–14, new projections showed that policymakers anticipated inflation to end 2023 higher than they had previously predicted. This resulted in unexpectedly broad projected support for the idea that interest rates would need to increase above 5% in 2023.
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Chair Jerome Powell connected the central bank’s inflation pessimism to sustained strength in the labour market in his post-meeting press conference, highlighting prices for services in particular.
Many observers criticized the central bank’s decision to raise its benchmark interest rate from near zero in March as a late start to the tightening cycle. Fed then accelerated its rate hikes for the rest of the year, raising the federal funds rate to 4.25%, the highest since 2007.
Following four three-quarter-point moves, policymakers chose a half-point rate hike at their December meeting. However, they also indicated another 75 basis point increase in 2023, which was more than what Fed watchers had anticipated given recent lower inflation readings.
The Fed is going into 2023 determined to win the war on inflation, which in 2022 reached its greatest levels in forty years before beginning to decrease in the last few months of the year. Markets and global investors will be more interested in how rate increases will affect the economy than they will be in determining whether a potential recession will be mild or detrimental.