Fed interest rate hike imminent following high-level meeting

by mcardinal

Willie R. Tubbs, FISM News


In a move that has been expected for some time, the Federal Reserve announced Wednesday that its policymaking committee recommends a hike in interest rates.

In its annual consensus statement, the Federal Open Market Committee did not specify a date but indicated an increase to its short-term borrowing rate was coming, perhaps as early as March.

“With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the statement reads.

The forthcoming change has been necessitated by a steady and troubling rise in inflation, which was running at a 40-year high as of the turn of the new year.

“I think there’s quite a bit of room to raise interest rates without threatening the labor market,” Fed Chair Jerome Powell said in a post-meeting press conference.

The Fed, which has been dialing back its purchase of fixed-income investments, also announced that it would likely allow its bond-buying program to expire in March. The central bank will still buy about $30 billion in bonds in February.

“The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the statement reads.

When the Fed enacts its interest-rate increase, it will mark the first time since 2018 that such a change has occurred; and the committee left open the possibility that more adjustments could be made.

“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook,” the statement reads. “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

The depressing news for average Americans is that even with Fed intervention, it’s unlikely that inflation stabilizes quickly.

In a different document, the FOMC’s “Statement on Longer-Run Goals and Monetary Policy Strategy,” the committee stressed that its policy changes usually have their effect over time rather than with immediacy.

“Monetary policy actions tend to influence economic activity, employment, and prices with a lag,” the statement reads. “In setting monetary policy, the Committee seeks over time to mitigate shortfalls of employment from the Committee’s assessment of its maximum level and deviations of inflation from its longer-run goal.”

The FOMC operates, under Congressional mandate, with the goals of promoting maximum employment, stable prices, and moderate long-term interest rates.