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The pace of interest rate adjustments is slowing, but the Fed remains hawkish on curbing inflation.

• In the first Federal Open Market Committee (FOMC) meeting of 2023, the Federal Reserve (Fed) raised the federal funds rate by 25 basis points (bps).
• Following four consecutive meetings of 75 bps adjustments, the Fed’s pace has slowed and rate adjustments have totaled 75 bps across its December and January/February meetings.
• Fed officials reiterated a commitment to bringing inflation down to its 2% target.
• This increase brings the Fed’s cumulative total increase to 450 bps since March 2022 and raises the federal funds rate to 4.50%-4.75%.

The inaugural FOMC meeting of 2023 concluded on February 1, with the Fed announcing a 25 bps rate increase. Investors were hopeful the move would indicate that the Fed may be nearing the end of its tightening cycle; however, the central bank remains resolute in its efforts to bring inflation down to its 2% target.

The eighth consecutive rate increase brings the Fed’s cumulative total increase to 450 bps and raises the federal funds rate to 4.50%-4.75%, the highest range since 2007. The 425 bps of adjustments in 2022 represented the most aggressive start to a tightening cycle in the last 40 years.

“While the Fed reinforced the belief that there has been some improvement, inflation remains elevated, and it has indicated it will take all measures necessary to bring down the rate of inflation to the 2% target line,” said Raymond James Chief Economist Eugenio Alemán, Ph.D.

Following a four-meeting stretch of 75 bps rate increases, the Fed has slowed its pace and adjusted rates a total of 75 bps since December 2022, fueling speculation that the tightening cycle that commenced in March 2022 was perhaps drawing to a close.

That doesn’t appear to be the case – yet.

Federal Reserve Chairman Jerome Powell reinforced the post-meeting statement that “ongoing increases in the target range” are a possibility to achieve the desired inflation rate. Powell did concede in his post-meeting press conference that disinflation has begun in some sectors, which helped to turn the tide of the markets after they initially reacted negatively to the mention of continuing rate increases.

“This meeting did not include the ‘Summary of Economic Projections,’ so it will be very difficult to gauge if the Fed decision-makers have had a change of heart regarding the future path of the federal funds rate and what the terminal rate would be for this monetary cycle,” stated 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.