Fed Raises Rates by 0.25%; Hints at Ending Tightening Campaign
In an effort to combat inflation, the Federal Reserve has raised interest rates for the ninth time in a row. The central bank has approved a 0.25% increase, bringing its benchmark fed funds rate to a range between 4.75% and 5%. This is the highest level since September 2007. However, officials hinted that they may end their rate-hike campaign sooner than expected due to the banking crisis. They mentioned in a post-meeting policy statement that the committee anticipates some additional policy firming may be appropriate, indicating that they could soon be done raising interest rates. Although all 11 voters on the rate-setting Federal Open Market Committee agreed to the decision, recent developments suggest that the impact of higher interest rates on the wider economy has become more evident.
Fed Officials Project One More Rate Hike in 2023
New projections indicate that 17 out of 18 officials who participated in the meeting expect the fed-funds rate to rise to at least 5.1% by the end of the year, implying one more quarter-point increase. These quarterly projections were similar to the last set of materials released in December.
The fed-funds rate has a significant impact on borrowing costs in various sectors of the economy, such as mortgages, credit cards, and auto loans. The Federal Reserve's decision to increase rates is aimed at curbing inflation by reducing economic growth. The central bank believes that this policy move can tighten financial conditions, leading to increased borrowing costs and lower prices of assets.
Impact on Stocks
The Federal Reserve's decision to continue raising interest rates could significantly affect the stock market, as it already has. Higher interest rates may lead to increased borrowing costs for companies, which could translate into lower profits and stock prices. Additionally, higher interest rates may attract investors away from stocks and toward bonds, leading to lower demand for stocks and further declines in stock prices.
