Punctually last night came the FOMC and with it Powell unveiled the moves of the Federal Reserve (Fed) on interest rates, that resulted in a 25 basis point rise.
The market had been expecting a change to the extent of 0.25 and expectations were not disappointed when Jerome Powell chairman of the Federal Reserve (Fed) announced the extent of the interest rate change.
“We still have work to do,” he was quick to point out from the conference stage as if to emphasize that the monetary policy undertaken would not yet stop its course.
Targets of the Federal Reserve (Fed) in line with the rate hike
For the US central bank, price stability is a beacon to aim for, and in the president’s words, “a restrictive policy will be needed for some time.”
So even if inflation comes back to milder levels and the economy along with employment were to travel on consistent numbers, “a rate cut this year will probably not be appropriate.”
Rates in total are up 475 basis points with the Fed’s latest move and this is a record high since September 2007.
The Consumer Price Index (CPI) has fallen significantly in value and this is good news but the Federal Reserve has not let its guard down.
Rate hikes remain a weapon that will still be used by the Fed this year because the values at which the body tends to normalize the US economy have not yet been reached.
The optimal outcome to strive for has never been hidden and is partly inherent in the Fed’s goals.
Full employment and low inflation around 2% / 3% is the ideal end point but that still remains a long way off.
“In support of these targets, the Fed has decided to raise rates to a range between 4.5% and 4.75%. We anticipate that the current hikes will be appropriate to achieve a sufficiently restrictive monetary policy. In determining the “The extent of future increases will take into account economic and financial developments. We are strongly committed to returning inflation to the 2% target.”
This is what can be read in the side note released by the Federal Reserve at the end of Jerome Powell‘s speech.
The missive suggests that the monetary policy undertaken for more than a year will not yet see its end.
The decision to raise interest rates by an additional 0.25%, the note says, was decided unanimously by the FOMC participants.
The market had already priced in this rate hike by predicting the Fed’s moves in advance, and even after last night’s announcement it reacted well by showing strength.