In the Dec. 13–14 Federal Open Market Committee (FOMC) meeting, the Federal Reserve committee voted to increase the federal funds rate by 50 basis points to between 4.25 percent and 4.5 percent.
This decision was in line with previous statements from Fed Chair Jerome Powell and other members of the FOMC who had indicated they anticipated a slowing down of rate hikes starting with this last meeting of 2022 and continuing into 2023.
This half-percentage point increase marked a step-down from the series of four 75-basis point increase the Fed enacted through second half of 2022. Fed policymakers indicated that they planned to continue raising rates through most of 2023, but that it would likely be at a slower rate than this year.
“We are seeing the effects on demand in the most interest-sensitive sectors of the economy such as housing. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation,” Powell said in the press conference following the announcement. “We still have some ways to go.”
Powell made it clear in his statement that the Fed was prepared to do what it thought necessary to get inflation down to its 2 percent level. Powell indicated that a “softening” in labor market conditions would be expected as the Fed continues to act against inflation. He indicated that current labor market conditions are tight in part because of early retirements, higher than average deaths, and limited migration, all caused by the pandemic.
“I wish there were a completely painless way to restore price stability,” Powell said. “There isn’t. This is the best we can do. I do think, and markets are pretty confident, that we will get inflation under control. I believe we will.”