Federal Reserve Press Release In Plain English – February 2023

The Federal Reserve increased the target for the federal funds rate by 0.25% yesterday to a range between 4.5% – 4.75%. In addition, in a press conference following the announcement, Jerome Powell intimated might be able to conclude rate hikes within the next couple of meetings.

There are some encouraging signs in the housing market. Rates have stabilized and new home sales have picked up as of the end of December. If you’re ready to get started, apply online.

My analysis is in bold below.

Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated.

This is an overview of where we’re at. Both spending and production are up. Meanwhile, the economy is still adding jobs on balance and the unemployment rate is really low. Inflation is the black sheep in this equation and the Fed continues to give it the stink eye despite the fact that it’s coming down a bit.

Russia's war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty. The Committee is highly attentive to inflation risks.

There’s a human toll to the ongoing war between Russia and Ukraine. Well below that on the priority list, there’s also an economic toll. The war has caused disruptions in the normal supply lines for many goods relied on around the world. Chief among these headlines is probably movements in oil and natural gas prices.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent. 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. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, 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. The Committee is strongly committed to returning inflation to its 2 percent objective.

This is the most substantive paragraph in any of these statements. Let’s break it down because there’s a lot going on here.

The big thing any trader will notice right away is that the Committee raised the reference range for the federal funds rate 0.25% to 4.5% – 4.75%. It wants to get the rate of inflation down to 2% annually. In the Fed’s judgment, that would be just enough inflation to encourage buying now without prices skyrocketing. These rate hikes support that.

The Committee also wants to continue its plan to sell off its holdings of mortgage-backed securities. The theory here is that if mortgage rates end up a little bit higher than they were prior to this, it’ll stop the ever-increasing home prices that were supported by historically low rates.

Members are also aware that there’s a delay between the effect of the moves the Federal Reserve makes and when it actually shows up in the market. So part of the Fed’s job is to walk a tightrope. It wants to slow things down while also not putting a vise grip on the economy.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The 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's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

The Fed looks at a lot of different data sources in making its policy decisions, but there is no doubt that inflation and expectations for inflation are holding much more sway than some other areas at this point.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lael Brainard; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.

Everyone was in agreement.