Federal Reserve raised interest rate by 25 basis points to curb inflation towards the target

Autor: Financial Market
Timp de citit: 2 minute

Today, the Federal Open Market Committee raised the policy interest rate by 25 basis points and continues to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.

In addition, Fed is continuing the process of significantly reducing the size of bank’s balance sheet, restoring price stability requiring a restrictive stance for some time.

The U.S. economy slowed significantly last year, with real GDP rising at a below-trend pace of 1 percent and recent indicators point to modest growth of spending and production this quarter.

Consumer spending appears to be expanding at a subdued pace, in part reflecting tighter financial conditions over the past year while activity in the housing sector continues to weaken, largely reflecting higher mortgage rates.

FOMC Statement

• Higher interest rates and slower output growth also appear to be weighing on business fixed investment despite the slowdown in growth, the labor market remains extremely tight, with the unemployment rate at a 50-year low, job vacancies still very high, and wage growth elevated.

Job gains have been robust, with employment rising by an average of 247,000 jobs per month over the last three months. Although the pace of job gains has slowed over the course of the past year and nominal wage growth has shown some signs of easing, the labor market continues to be out of balance.

Labor demand substantially exceeds the supply of available workers, and the labor force participation rate has changed little from a year ago.

Inflation remains well above our longer-run goal of 2 percent. Over the 12 months ending in December, total PCE prices rose 5.0 percent; excluding the volatile food and energy categories, core PCE prices rose 4.4 percent.

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• The inflation data received over the past three months show a welcome reduction in the monthly pace of increases. And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.

Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.

• Although inflation has moderated recently, it remains too high. The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4.5% to 4.75%.

The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.

In determining the extent 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.

In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.