Federal Reserve Press Release In Plain English – March 2023

In probably the most closely watched decision on interest rates since the very beginning of the pandemic, the Federal Reserve chose to raise the target for the federal funds rate 0.25% to a range of 4.75% – 5%. All eyes were on this decision for a couple of reasons:

First, the Fed no doubt understood the significance of this meeting, as we’ve seen certain banks wobble and fail in recent days. Some have questioned whether this is a sign the Fed has gone too high too fast with rates. Then there was the question of how much the Fed would express support for the banking system.

Second, this meeting marks the end of the first quarter, so the Federal Open Market Committee (FOMC) reevaluates its projections for the months and years ahead. Would recent events have Fed members changing their tune at all?

All of the news recently has made plenty of people make a claim to be armchair economic experts. While no one, including the Fed, can or should claim perfect insight into what’s going to happen next, one of the things pointed out in the statement is that the system is still in good shape.

For the average consumer, this statement shouldn’t change anything. If you were ready to buy or refinance a house before today, you can feel confident locking your rate and moving forward.

Nothing really changed in terms of the Fed’s long-term projections. They still see rates being 5.1% for the long-term federal funds rate. If anything, the projection ticked up slightly for 2024. They do see the unemployment rate rising incrementally to 4.5% throughout the balance of 2023.

My analysis is in bold below.

Recent indicators point to modest growth in spending and production. Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated.

The Fed always starts with a readout on how it would grade the economy’s performance. Employment is still very strong. Meanwhile, inflation is running high relative to where the Fed would like to see it.

The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.

The Fed pretty much said what it had to say here – nothing more and nothing less. The Committee says that overall, the banking system is  going to be fine. They might just tighten the purse strings a little bit in order to make sure they maintain a solid financial position.

While this probable pullback by some lenders is likely to have a slowing effect across the economy, no one can know the full extent. Meanwhile, inflation continues to be a primary target in the Fed’s crosshairs.

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 4-3/4 to 5 percent. The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may 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.

The Fed wants to bring inflation down to a very modest 2% annual pace that encourages people to buy now, without some of the elevated inflation we’ve seen in recent years.

One interesting change this time around is that it said “additional policy firming” – read tighter financial conditions – may be appropriate. This is a little more “wait and see” than last month when the statement said further increases were anticipated. Members are promising to adapt to changing conditions.

Other than that, it’s somewhat business as usual. The Fed pledged to continue selling treasuries and agency mortgage-backed securities. All else equal, this would push mortgage rates up. But as we’ve seen in the past couple weeks, anything can happen. Rates will be up and down. Focus on affordability.

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 always looks at a wide variety of economic information in making its decisions. For the past umpteen statements, there’s been a special focus placed on inflation. We can add both financial and international developments to that list.

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

The members were in agreement.