Fed expects to continue raising rates in 2023 and will increase pace if necessary

The Federal Reserve (US central bank) calculates that it will have to maintain the pace of its restrictive monetary policy for much of 2023 and does not rule out an increase, if necessary, to ensure that inflation continues to fall.

The information was emphasized by the Fed in the minutes of the meeting held on January 31st and February 1st, when it decided to raise interest rates again – for the eighth consecutive time –, although by 0.25 points, less than the previous ones.

Members of the Open Market Committee were clear from the beginning of this meeting that it was necessary to raise interest rates again, although there was also agreement from the beginning that such an increase should be delayed.

“The restrictive policy would have to be maintained until the data show that inflation is coming down substantially and is on track for 2%”, the institution’s objective. According to the members of the commission, “it is likely to take some time”, details the minutes.

There is no expectation in the minutes that the rate hikes will be stopped in the short term, nor are there any guarantees that the slowdown in these increases can be sustained.

Committee members thus agreed to be “ready” to change the pace of rate hikes if “risks” arise that could impede the primary objective of reducing inflation.

The minutes do not record disagreements on monetary policy, although there are differing opinions on the course of the economy.

Many commission members predict a slowdown in US economic growth, although some still speak of a “mild recession in 2023”. Most highlighted the “considerable uncertainties” that loom, from a larger-than-expected slowdown to “persistent” inflation.

And while in their macroeconomic analysis they spoke of “modest” growth in both expenditure and activity, they also underlined the continued strength of the labor market, despite the already agreed rate hikes.

Members also agreed that the Russian invasion of Ukraine continues to exact a “tremendous human and economic cost” and continues to contribute to heightened global uncertainty. Thus, they pledged to remain “very attentive” to inflationary risks.