Federal Reserve considers another rate increase

The Federal Open Market Committee is meeting to determine if it will continue raising interest rates to bring down inflation.

Hints are another small interest rate increase could be looming after recent economic numbers show continued price hikes and a strong labor market. The results of the meeting and policy decision will be announced Wednesday with Federal Reserve Chair Jerome Powell holding a press conference.

The Federal Reserve announced in March another increase of 25 basis points in the target rate for federal funds. The new target range is 4.75 to 5 percent. It was the ninth rate increase in the past year and second straight hike of a one-quarter of a point. Previous hikes ranged from three-quarters to half a point.

During a speech at Georgetown University last month FOMC Governor Lisa Cook gave insight on the looming decision.

“We have raised interest rates 475 basis points in a year to bring inflation under control. Currently, with the federal funds rate target near 5 percent, I am looking at what rate will be sufficiently restrictive to bring inflation down to 2 percent, over time,” Cook explained.

“I am weighing the implications of stronger momentum in the economy apparent in economic indicators over the past few months against potential headwinds from recent banking developments. If tighter financing conditions are a significant headwind on the economy, the appropriate path of the federal funds rate may be lower than it would be in their absence. But if data show continued strength in the economy and slower disinflation, we may have more work to do. In setting monetary policy, I continue to be guided by our dual-mandate goals of maximum employment and price stability. I, like my colleagues on the FOMC, am committed to bringing inflation back to its 2 percent target over time, which will lay the foundation for sustainable strength in the labor market and the U.S. economy.”

In March, Powell stressed the need for the FOMC to remain committed to its efforts to rein in inflation.

“The process to get to our 2 percent target has a long ways to go and is liable to be bumpy,” Powell said.

The 12-month price increase was 5 percent in March, the smallest annual increase reported since May 2021, according to the Consumer Price Index released by the U.S. Bureau of Labor Statistics. In February, annual inflation was at 6 percent.

Job growth slowed slightly in March, but unemployment remains historically low.
According to figures released by the U.S. Bureau of Labor Statistics, the nation added 236,000 jobs, with the unemployment rate at 3.5 percent.

The interest rate increases in the past year have dramatically impacted affordability in the used vehicle market. With interest rates increasing to 10.26 percent, the average monthly payment topped $526, according shared in Experian’s State of Automotive Finance Market Fourth Quarter report. The average payment was up $11 from the third quarter, even though the amount financed was down $766 to $27,768.

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