The Federal Reserve will announce its first interest rate decision of the yr this afternoon.
The central financial institution is anticipated to elevate its short-term interest rate by 1 / 4 share level, a slowing of final yr’s aggressive tempo of hikes. It could be the eighth improve for the reason that Fed started its tightening cycle in March 2022. The ratcheting again of charges comes as painful value will increase ease within the U.S., with annual inflation measured by the Consumer Price Index declining for the sixth consecutive month in December to six.5%.
The Fed hasn’t raised interest charges by 1 / 4 share level since March 2022 . Traditionally the Fed raises interest charges by quarter share level increments, however persistently excessive inflation pushed it to behave extra aggressively.
Over the course of 2022, the Fed handed 4 75-basis-point rate hikes. Rate hikes of that magnitude hadn’t beforehand occurred since 1994. The Fed’s cumulative rate hikes final yr raised the benchmark federal-funds rate by 4.25%.
At this time final yr, economists questioned why the Fed did not begin elevating interest charges. But now they’re questioning when the Fed will cease because it walks a shaky tightrope between reducing inflation to its 2% goal and pushing the economic system into recession.
Follow alongside for dwell protection main as much as the rate hike decision and Fed Chairman Jerome Powell’s information convention.
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Fed rate hike announcement time
The Fed’s decision on interest charges comes out at 2 p.m. ET.
The Fed Chairman’s information convention will start half-hour after the rate decision is introduced at 2:30 p.m. ET.
A contemporary learn of the labor market was simply launched.
The Job Openings and Labor Turnover Survey (JOLTS) confirmed that there have been 11 million vacancies in December. That exceeded economists’ expectations by almost 1 million vacancies.
The Fed has been maintaining a detailed eye on the report for indicators of a labor market slowdown. Fed Chair Powell has repeatedly stated that vacancies are too excessive and want to return down in order that the labor provide is best aligned with demand.
Stocks opened barely decrease forward of the Fed decision. The Dow Jones Industrial Average is taking the most important hit down 0.50% whereas the S&P 500 and Nasdaq Composite are every down round 0.20%.
No one can say with certainty
The next CPI report might be launched in about two weeks on Feb. 14.
There had been seven rate hikes in 2022. Four of the seven hikes had been in 75 basis-point hikes, two had been 50 basis-point hikes and one was a 25 basis-point hike.
Bitcoin is down barely this morning. But total, the cryptocurrency is having a stellar month. It’s up almost 40%.
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How Fed rate hikes impact credit card rates
The interest rates banks charge on their credit cards are tied to the prime rate, which is tightly linked to the Fed funds rate.
As the prime rate has risen to 7.5%, the average credit card interest rate has risen from 14.6% in February 2022 to 19.9% last week, according to Bankrate. That has raised monthly interest charges by about $29 to $108 on the average American’s $6,965 credit card balance.
To see how the Fed’s rate hikes have impacted other areas of the economy like home sales, the stock market and more be sure to read Jim Sergent’s piece.
The Fed’s decision today is largely going to be influenced by inflation.
Inflation is when prices for goods and services rise across the board. If, for instance, gas prices go up a lot but overall prices remain stable the economy would not be experiencing inflation.
As the Fed hiked interest rates, 30-year fixed-rate mortgages shot up in 2022 as the Fed hiked interest rates.
At the start of last year, average 30-year fixed-mortgage rates hovered around 3%, according to Freddie Mac data. Now they’re double that. However, they’ve come down from a November peak of over 7%, the highest level since 2002.
The housing market cooled tremendously over the last year from the pandemic-era housing boom the Fed’s low-interest rate environment ignited.
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Is inflation going down?
The two main U.S. inflation measures, the Consumer Price Index and the Personal Consumption Expenditures price index, are easing.
The latest CPI report found prices for goods and services were 6.5% higher than a year ago. That’s a sizeable improvement from June when annual inflation was over 9%. On a monthly basis, consumer prices fell by 0.1% in December, the first decline since May 2020.
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When is the next Fed meeting?
The Fed’s next meeting is from March 21 to 22.
Here are the remaining meetings for the year:
- May 2-3
- June 13-14
- July 25-26
- September 19-20
- Oct/Nov 31-1
- December 12-13
Stocks kicked off 2023 with a bang. The Dow gained nearly 3% last month while the S&P 500 and Nasdaq notched even bigger gains.
The tech-heavy Nasdaq had its best January since 2001.
Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here