The Federal Reserve announced a 0.5 percentage point hike, or 50 basis points, to the baseline federal funds rate Wednesday, setting the new range at 4.25% to 4.5%.
The move was widely expected by investors, and although it represents a slowdown from the Fed’s previous four rate hikes at 75 basis points.
This is the sixth hike since March at 50 basis points or greater, following 22 years where the Fed never hiked more than 25 basis points at a time, according to CNBC.
Investors now look to the Fed’s communication over the next several weeks to see if a further slowdown will occur at the Fed’s next meeting in February, or if the so-called “terminal rate,” at which the Fed will halt hikes, might be higher than the market consensus of roughly 5%.
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“[T]his pivot seems to contradict previous statements by Fed Chair Jerome Powell,” Thomas Hogan, senior researcher at the American Institute for Economic Research and former chief economist for the U.S. Senate Committee on Banking, Housing and Urban Affairs, said in a statement to the Daily caller News Foundation. “He said they would wait to change policy until they had evidence of clear progress toward their inflation goals, yet core PCE and core CPI remain high. Interest rates, though higher than before, are still negative in real terms.”
“I’m hoping Jay Powell will stand firm and continue to do what needs to be done,” said former FDIC Chairman William Isaac. “I’m hoping they go up at least a point.”
But on the flip side,
“This hiking cycle should be over right now,” wrote Tom Porcelli, chief U.S. economist at RBC Capital Markets. “We have been fond of saying over recent months that the Fed is fighting yesterday’s war on inflation. … There is no need at this point to continue hiking rates, but, of course, they will.”
Stocks are expected to see swings in the hours following today’s announcement as investors process the Fed’s new policy direction, according to Reuters.