The Federal Reserve’s Federal Open Market Committee (FOMC) is preparing to hold its March meeting to decide if another increase to the federal funds rate is appropriate in the continued effort to lower inflation. This meeting comes less than two weeks after the collapse of three U.S. banks and amid a less stable banking market.
Fed Chair Jerome Powell has maintained the FOMC is prepared to increase rates again this month by at least 25 basis points, increasing the federal funds rate to at least 4.75 percent.
Even with the failure of three banks over the past two weeks putting markets in a far less secure position than they were less than a month ago, Powell and the FOMC are expected to hold the course on the way to rates that will quickly, adequately, and securely lower inflation.
“Fed officials are unlikely to pivot at next week’s meeting by pausing rate hikes, in our view,” Citigroup economist Andrew Hollenhorst said in a note to clients last week. “Doing so would invite markets and the public to assume that the Fed’s inflation fighting resolve is only in place up to the point when there is any bumpiness in financial markets or the real economy.”
Current projections from Citi see the Fed continuing a steady increase in the benchmark funds rate to a target of 5.5 to 5.75 percent, a one percentage point increase from the current rate of 4.5 to 4.75 percent.
Powell and the Fed have continued to state it will do whatever it deems necessary and appropriate to reach the 2.5 percent annual inflation rate it considers “normal.” The February Consumer Price Index (CPI) – the key measure of inflation the Fed considers when changing rates – measured annual inflation at the end of February to be 6 percent, making February the eighth straight month of disinflation and a decrease of 3.1 percentage points from the CPI’s peak measure in June 2022 of 9.1 percent.