The interest rate announcement from the Fed is in line with market expectations, and is the eighth consecutive interest rate hike from the Fed.
However, the increase is a step down from the two previous monetary policy announcements – in December the interest rate was raised by 50 basis points, and before that by 75.
- By slowing down the pace of interest rate increases, we facilitate the committee's work to assess the economy's development towards our inflation target, said Fed chief Jerome Powell at the press conference that followed the interest rate announcement.
The fact that today's increase was smaller than the two previous interest rate increases can be seen in the light of the fact that inflationary pressure in the US has eased recently.
Households hold tight to their wallets
On the labor market, a number of tech giants have announced mass layoffs and signs are now coming that American households are holding tighter in their wallets, which is necessary for the price level to fall and thus inflation.
During the press conference, however, Fed chief Jerome Powell emphasized that inflation has not yet been overcome.
- Although inflation has moderated recently, it is still too high, says Jerome Powell.
How much the US interest rate will be raised in 2023 remains to be seen.
In connection with the interest rate announcement in December, the forecast was that the policy rate would be up to 5.00–5.25 percent in 2023, which would then mean two more 25-point increases.
Several sectors have recovered
Since the interest rate announcements in November and December, several sectors have recovered from sharp falls in 2022, including the interest-sensitive tech sector.
From the market point of view, it is even appreciated that the Fed will be allowed to do a U-turn and even lower the interest rate by 25 basis points at the end of 2023.
During 2022, the Fed raised the key interest rate by over four percent.