JANUARY 23, 2023 – QUARTER POINT RATE INCREASE EXPECTED NEXT WEEK
The Fed will be meeting on January 31-February 1 when they are expected to raise rates by 0.25 percent. It is expected the upcoming meeting will focus on how much higher rates will have to rise before pausing rate increases in the spring.
The Fed has said slowing increases to the more traditional rate increments of 0.25 percent will give them more time to assess the impact of past rate increases and when the increases could stop. Fed officials predicted in December the Fed Funds rate would peak at 5 to 5.25 percent this year, implying two additional quarter-point increases, one in February and one in March. The Fed raised rates seven times last year.
In recent weeks inflation has slowed down from the peaks seen earlier in 2022, consumer spending is down as is manufacturing activity. Rate increases were implemented to reduce demand and that seems to be working. As economic data is released in January and February, the Fed will be looking to see if wage growth is slowing. Higher inflation for 2023 was projected as wage growth has been running well above average.
The opportunity exists to mitigate rising debt costs by using interest rate hedges to lock in today’s lower rates before the Fed approves another rate increase.