Fed raises interest rates in smallest hike since March

Source: The Hill | February 1, 2023 | Tobias Burns

The Federal Reserve raised interest rates by 0.25 percentage points on Wednesday at its first meeting of the year, its eighth straight rate hike since it began a program of tightening borrowing costs last year in an effort to bring down inflation.

It’s the smallest rate hike since last March, coming off a 50 basis point hike in December that followed four 75 basis point hikes starting last June. It will lift the federal funds rate to a range of 4.5 to 4.75 percent as the Fed pushes toward a projected target rate of 5.1 percent, which was last updated in December.

The more modest increase comes as inflation has been falling throughout the economy. The consumer price index (CPI) has dropped every month since June, landing at 6.5 percent annually in December. The personal consumption expenditures price index (PCE), which is the Fed’s preferred gauge of inflation, has fallen to 5 percent annually, off a June high of 6.8 percent.

With inflation coming down and unemployment levels remaining at a 50-year low, the Fed is aiming for what it calls a “soft landing,” meaning it wants to bring inflation back down to an annual rate of 2 percent without triggering a serious recession.


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