What The Fed's Move Means To You

February 1, 2023

What The Fed's Move Means To You

What The Latest Fed News Means For You

In line with expectations, The Fed raised its benchmark interest rate by .25% on Wednesday but did not give clear indication that it is near the end of its hiking cycle. Rising to a range of 4.5%-4.75%, the highest in over 15 years according to the rate-setting Federal Open Market Committee.  

This hike was the eighth consecutive increase in an inflation fighting process that began in March of last year. These increases drastically increased the cost of interbank lending, or the rate at which banks charge each other for overnight borrowing, which in turn drove up the cost of consumer credit for everything from mortgage and credit cards to student loans and car loans. 

Although showing signs of slowing, inflation is still running at nearly its highest levels since the early 1980’s despite the Fed’s efforts to fight it. In tweaking a previous statement, the Fed noted that inflation “has eased somewhat but remains elevated.” 

Markets were hoping for signs the Fed would be ending its increases soon, however the statement did not provide any assurances that an end was near, even with the lower hike. The Dow Jones Industrial Average was down over 300 points prior to the Fed’s announcement, then slightly rebounded afterwards. 

Despite the market's hope for a dovish pivot, the Federal Open Market Committee unanimously agreed there would be need for “ongoing increases in the target range.” This steadfast postering comes as food prices are up 10% over the past year, eggs prices have soared 60%, butter is up more than 30%, and lettuce has risen 25%. 

What does it mean for you? 

This rate hike will cause the prime rate to rise, which sets rates for many forms of consumer borrowing from credit cards to home equity lines of credit. As a tax on savings with reduced purchasing power due to inflation, the impact of these hikes will be felt by the millions and millions of people already living paycheck to paycheck.

The initial stance of the Fed still indicates higher rates ahead as Fed Chairman, Jerome Powell said they will need substantially more evidence to be confident inflation is on a downward path.

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