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The latest adjustment snaps a four-month run of 75 bps interest rate increases by the Fed.

• As expected, the Federal Reserve (Fed) increased the federal funds rate by 50 basis points (bps).
• Fed officials reiterated its commitment to bringing inflation down to its 2% target.
• The Fed indicated that it would keep raising rates through at least Q1 2023.
• This increase brings the 2022 cumulative total to 425 bps and raises the federal funds rate to 4.25%-4.50%.

At its December 14 Federal Open Market Committee meeting – the final one of 2022 – the Fed announced a 50 bps rate increase. While the move was widely predicted, this latest adjustment officially ends the Fed’s four-month run of 75 bps jumps.

While there’s been speculation that the Fed is nearing the end of the tightening cycle, Federal Chairman Jerome Powell indicated that the Fed intends to keep raising rates through at least Q1 2023, with no reductions until 2024, as it strives to hit its target 2% rate of inflation.

“The Fed will continue to tighten monetary policy because the current policy is still not tight enough to bring inflation down to the 2% target,” said Raymond James Chief Economist Eugenio J. Alemán, Ph.D. “This will necessitate higher interest rates for a longer period of time.”

The Fed raised rates seven times and by a total of 425 bps since March when it established its hawkish approach to curtailing inflation. It is the most aggressive start to a tightening cycle in the last 40 years. The federal funds rate target is 4.25%-4.50%, which is the highest range since 2007.

The latest dot plot, which is the estimate from Fed members on where they see the federal funds rate during the next several years, shows that it now sees the ending rate for this tightening cycle higher than previously indicated in June and September.

“While Fed Chair Powell recognized during his press conference that inflation has been better than expected during the last several months, it is not enough to stop worrying about inflation,” said Alemán.

All expressions of opinion reflect the judgment of Raymond James’ Chief Economist and are subject to change.

There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. Investing involves risk, and you may incur a profit or loss regardless of the strategy selected.