Fed Raises Rates Again in December

The year-end rally in the stock market was fueled by a November Consumer Price Index (CPI) inflation rate of 7.1%, which was below expectations. Suddenly all market pundits were predicting that the Fed would potentially pivot on rate policy next year and stop tightening.

However, the stock market rally was stamped out by the comments emanating from the Federal Reserve’s December meeting. During the recent Federal Reserve Policy meeting Chair Jerome Powell said the policymakers are not close to ending its anti-inflation campaign of interest-rate increases as officials signaled borrowing costs will head higher than investors expect next year. Powell remarked “We still have some ways to go!”

During December’s meeting the Federal Open Market Committee raised its benchmark rate by 50 basis points to a 4.25% to 4.5% target range. Based on the recent dot plot policymakers are now projecting rates would end next year at 5.1%, according to their median forecast, before being cut to 4.1% in 2024 — a higher level than previously indicated.

Powell remarked that the size of the rate increase delivered on Feb. 1 at the Fed’s next meeting would depend on incoming data — leaving the door open to another half-percentage point move or a step down to a quarter point — and he pushed back against bets that the Fed would reverse course next year. The committee anticipates that ongoing increases in the target range are in order to attain a monetary policy that is sufficiently restrictive to move inflation to the previous 2% growth rate.