For the first time since March 2022, the Federal Reserve has executed a so-called “normal-sized” rate hike of 25 basis points. The Fed’s decision was widely anticipated by markets and marks the eighth consecutive rise in the lending rate in less than a year.
It also represents the second meeting in a row the Fed has slowed down the pace of rate hikes. The move brings the federal funds rate to a range of 4.5% to 4.75%, its highest level since 2007. …
But in its announcement Wednesday, the Federal Reserve noted that the work is far from over. The open market committee said it still anticipates “ongoing” increases to the rate will be necessary to reach the target inflation rate. The next meeting will take place over two days on March 21-22.
[The slowing of the size of increases indicates that Powell thinks they’re getting close to the target and wants to take a more surgical approach. The latest PCE price index shows progress; that key Fed benchmark on inflation has come down to 5.0% annualized, and went up only 0.1% month on month in December. That’s within a half-percent of the current Fed prime rate, and that shows that the normal balancing mechanisms appear to be working.
One last thought: We’ve had cheap money for so long that people forget the regular normal for interest rates. A 5% prime and mortgages in the 7% range is a historical norm, not a disaster, although getting there has caused a lot of pain. — Ed]
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