Fed Raises Reference Rate by 0.25 Points, More Increases Expected

Fed Raises Reference Rate by 0.25 Points, More Increases Expected

**Fed Hikes Interest Rates to 4.5 – 4.75% despite Moderating Inflation, Powell Rues Cuts Unnecessary**

The Federal Reserve (Fed, US central bank) upped its reference rates by a quarter of a percentage point to a range of 4.50-4.75% on Wednesday. After two days of meeting, the first of the year, the Federal Open Market Committee (FOMC) “anticipates” that new rate increases “will be appropriate” to drive inflation to the 2% annual target.

In a press conference post the meeting, Fed president Jerome Powell ruled out any interest rate cuts in the near future, citing that although US economy is cooling off, inflation is “slowly” moderating and doesn’t warrant “opportune to lower rates this year or ease monetary policy”

Wall Street responded positively to the dovish tone after Powell clarified that there may be “several” additional interest rate hikes. Nasdaq gained the most with 2% increase, while S&P 500 rose 1.05%.

The January ADP/Stanford Lab survey showed job creation eases sharply in the US private sector with 106,000 jobs created, partly due to the weather. Some analysts anticipate that the central bank waits for the strength of the labor market to subside in order for wage pressures to ease, before changing its course of action. Unemployment still remains at record lows of 3.5%.

However, according to Oxford Economics, “more evidence will be needed to convince us that inflation is moderating on a lasting basis,” and the central bank needs “concrete evidence that they contained inflation, and they don’t have it yet.” Chief economist of Pantheon Macroeconomics, Ian Shepherdson further adds that any further interest rate hikes may only increase the chance of an “unnecessary recession” in the US.

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