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February 02, 2023

‘More hikes are in store,’ says NAFCU Chief Economist

MoneyThe Federal Open Market Committee (FOMC) concluded its first meeting of the year yesterday, where the committee raised rates 25 basis points to a range of 4.5 to 4.75 percent – the eighth consecutive meeting ending with a hike– and “signaled that more hikes are in store,” said NAFCU Chief Economist and Vice President of Research Curt Long after the meeting.

However, in the latest Macro Data Flash report, Long noted the size of the increase “was the smallest since the first hike of tightening cycle in March 2022.”

According to Long, “the deceleration in interest rate increases indicates the FOMC is continuing to acknowledge positive economic data aligning with their objective to see diminishing price pressures and cooling growth.”

The FOMC anticipates ongoing increases in the target range will be necessary to reach a stance of monetary policy to combat and return inflation to 2 percent over time. 

“The statement confirms that ‘inflation has eased somewhat.’ Recent forward guidance via public remarks from committee members suggests they are more concerned with future risks than present conditions, namely the continuation of tight conditions in the labor market and a possible rebound in inflation,” said Long.

Long also added that the committee’s statement suggests that several additional hikes are likely and that the Fed is committed to raising the Federal Funds Rate above 5 percent, which is consistent with its December projections.

“This creates a tension with market participants, who expect cuts in the second half of the year,” conclude Long. “To date, the FOMC has shown no indication that such a move is in the cards.”

More insights can be found in the new Macro Data Flash report. The FOMC will next meet March 21-22.