The Federal Reserve announced a 0.25% raise in the fed funds rate today. As I predicted in Sunday’s Control Panel, the market responded with a gleeful pop even though this tapering of the speed of Fed raises was expected for several weeks. Even though the Fed will continue raising rates even if they slow the pace. And they have no mention of cutting the fed funds rate in 2023.
February 01, 2023
Federal Reserve issues FOMC statement
The Committee is highly attentive to inflation risks.
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 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. [This will raise the yield of longer-term bonds. – W] The Committee is strongly committed to returning inflation to its 2 percent objective. [This is a clear cautionary message to the economists and speculators who are betting that the Fed will be OK with a 3% inflation rate and back down their fed funds strategy if a recession occurs. - W]
February 01, 2023
Federal Open Market Committee reaffirms its “Statement on Longer-Run Goals and Monetary Policy Strategy”
Statement on Longer-Run Goals and Monetary Policy Strategy
Adopted effective January 24, 2012; as reaffirmed effective January 31, 2023
The Federal Open Market Committee (FOMC)
is firmly committed to fulfilling its statutory
mandate from the Congress of promoting maxi-
mum employment, stable prices, and moderate
long-term interest rates. [end quote]
The Fed reaffirmed its mandate and did not change a single word. Using appropriate gravitas, they are smacking the market upside the head with the message that they will hang tough.
Maximum employment commensurate with
Stable prices (no, we aren’t near stable yet!) and
Moderate long-term interest rates (no, not decades of negative real yields!).
That determination is a huge trend change. The market doesn’t believe the Fed will actually execute this mandate once a recession begins and economists/ speculators/ politicians start heavy pressure to cut rates.