In a decision that met market expectations, the Federal Reserve has increased interest rates by one quarter of a percentage point. This is the Fed’s ninth consecutive rate hike since it began tightening the federal funds target rate back in March of 2022.
There had been growing uncertainty about what the Fed would do with rates ahead of the March 21-22 Federal Open Markets Committee meeting—the FOMC is the central bank’s main policy setting body.
While the job market has remained strong and inflation has been trending somewhat lower over recent months, the failure of Silicon Valley Bank and the eruption of a sudden banking crisis posed a dilemma for the Fed: Keep raising rates to sustain the fight against high inflation or hit pause to give markets space to cope with fallout from the banking crack-up.
The members of the FOMC opted to sustain their crusade against inflation, which is not surprising given recent rhetoric from key Fed officials—especially Fed Chair Jerome Powell.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell told Congress earlier this month.
After raising the federal funds target rate range to 4.75% to 5.00%, the Fed’s policy statement underlined the dilemma.
“The U.S. banking system is sound and resilient,” wrote the FOMC in its post-decision statement. “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.”
Analysts noted that the statement dropped a phrase used after recent meetings, namely that the FOMC anticipated “ongoing increases” in rates would be appropriate. They noted that this could signal that the Fed might consider ending rate increases sooner rather than later.
Federal Open Market Committee (FOMC) FAQs
What is the Federal Reserve?
The Federal Reserve is the central bank of the United States, and is generally considered to be the most powerful central bank in the world. Often referred to as the Fed, it was founded to direct monetary policy and manage the financial system. A seven-member board governs the Fed, and there are 12 Federal Reserve Banks in regions throughout the U.S.
What is the FOMC?
The Federal Open Market Committee (FOMC) is main policy making body of the Fed. The FOMC sets the federal funds target rate and makes other monetary policy decisions for the Fed. The FOMC meets eight times a year to vote on interest rates and policy priorities.
Who is on the FOMC?
There are 12 members of the FOMC:
The seven members of the Fed Board of Governors, led by Fed Chair Jerome Powell.
Five of the 12 Federal Reserve Bank presidents, although the head of the Federal Reserve Bank of New York is a permanent member of the FOMC. The other four voting positions are filled on a rotating basis by the presidents of the other Federal Reserve Banks across the country. Even though most presidents don’t vote, they can all attend the meetings and debate policy.
When is the next FOMC meeting?
The next FOMC meeting is scheduled for March 21-22, 2023. The FOMC hold eight scheduled meetings a year, one every every six weeks or so. The committee can also meet whenever it feels necessary and believes that it needs to act, such as during a financial crisis.
When are the FOMC minutes released?
The FOMC releases minutes of its meetings three weeks after the most recent meeting. A full transcript isn’t available for a full five years after a meeting.
How many times will the FOMC raise rates in 2023?
The FOMC has raised interest rates eight times since early 2022, putting the federal funds target rate at 4.50% and 4.75%. According to the CME FedWatch Tool, market professionals are betting that the FOMC will raise rates one more time in 2023.