Originally Published: February 1, 2023 2:00 PM ET
Updated: February 1, 2023 3:15 PM ET
The first Federal Reserve meeting of 2023 and the debut FOMC statement of the year is here. Jerome Powell’s statements are something investors will focus on for clues as to what’s in store for inflation, rate hikes, and, of course, the Fed funds target.
Whether it’s a more hawkish speech or if Jerome Powell is surprisingly dovish, this likely sets the tone for sentiment in the first quarter. Further details could also dictate how the market approaches risk-on assets like penny stocks.
January/February 2023 Fed Rate Hike Announcement
Heading into the Fed Meeting and FOMC statement from the January 31st to February 1st meeting, the market is expecting a 25 basis point hike. Stronger employment data and “better than bad” earnings have swayed speculation in the stock market. There has been plenty of volatility as a result, with the broader markets chopping during the Wednesday morning session. No matter what the rate increase is – 25 bps or 50 bps – the attention will likely be on what happens to the Fed Funds target rate.
January/February 2023 Fed Meeting, FOMC Statement, & Interest Rate Hike Top 10 Takeaways
- The Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent, 25 basis points.
- The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate.
- The longer-term inflation expectations that are well anchored at 2 percent foster price stability and moderate long-term interest rates and enhance the Committee’s ability to promote maximum employment in the face of significant economic disturbances.
- 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 Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
- The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Conduct overnight reverse repurchase agreement operations at an offering rate of 4.55 percent and with a per-counterparty limit of $160 billion per day; the per counterparty limit can be temporarily increased at the discretion of the Chair.
- Roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.
- Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month.
- Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions.
Fed Chair Jerome Powell’s FOMC Press Conference Highlights
- Ongoing increases will be appropriate
- Plans to significantly reduce the size of balance sheet
- U.S. economy slowed significantly last year
- Modest growth of spending so far
- Housing sector continues weakening
- Slow output growth is weighing on business fixed investment
- Labor market is extremely tight
- Job gains remain “robust”
- Labor force participation rate has changed little from a year ago
- Inflation data from the past 3 months show a welcome reduction is pace but need substantially more evidence that inflation is on a downward path
- Although inflation has moderated, it’s too high
- Strongly committed to returning inflation to 2% objective
- We have raised interest rates 4.5% over the past year
- Housing is seeing some of the greatest impacts from monetary policy
- Shifting to a slower pace will allow the committee to better assess future increases
- The overarching focus is to bring inflation down and keep longer term inflation expectations well anchored
- Reducing inflation requires below-trend growth and softening employment growth
- Staying the course and not slowing on policy decisions
- Overall financial conditions need to reflect policy being put in place and focus is on sustained broader conditions and why ongoing hikes will be necessary
- The inflationary process you see underway is at its early stages
- Demand shifting back to services
- Powell says Gratifying that the disinflationary process is underway
- Will talk more about Target Rate in March meeting
- Sees wages moving down but rest of labor market shows high payroll job creation
- We’ve covered a lot of ground and financial conditions have tightened
- Fed will be looking carefully at data through the March meeting but not a lot of certainty on what target rate increases will be yet. Will be data dependent
- We can now say for “the first time” that the disinflationary process has started
- By many indicators, the job market is still strong
- Goal is to bring inflation down. Still have a lot of work left to do
- Why not stop rate increases here? Still need time to see more progress on inflation
- Powell: Congress needs to raise the debt ceiling and deviations from that path would be highly risky
- Committee did not see this as the time to pause but to raise by 25bps
- Thinks there is a path to getting back to 2% without a significant increase in unemployment
- Could we see 5% inflation? Powell said: It’s possible but…
- Positive growth in 2023 will continue but at a subdued pace
- When asked what data is “substantially more evidence” that policy decisions are working? Powell: As evidence comes in, it will be reflected in policy over time. It is our job to restore price stability for the American public
- Financial conditions didn’t change from the December meeting to “now” and our forecast is we will need to keep rates higher for longer but we’ll see
