The Federal Reserve will announce its first interest rate decision of the year this afternoon.
The central bank is expected to raise its short-term interest rate by a quarter percentage point, a slowing of last year’s aggressive pace of hikes. It would be the eighth increase since the Fed began its tightening cycle in March 2022. The ratcheting back of rates comes as painful price increases ease in the U.S., with annual inflation measured by the Consumer Price Index declining for the sixth consecutive month in December to 6.5%.
The Fed hasn’t raised interest rates by a quarter percentage point since March 2022. Traditionally the Fed raises interest rates by quarter percentage point increments, but persistently high inflation pushed it to act more aggressively.
Over the course of 2022, the Fed passed four 75-basis-point rate hikes. Rate hikes of that magnitude hadn’t previously occurred since 1994. The Fed’s cumulative rate hikes last year raised the benchmark federal-funds rate by 4.25%.
At this time last year, economists questioned why the Fed didn’t start raising interest rates. But now they’re wondering when the Fed will stop as it walks a shaky tightrope between lowering inflation to its 2% target and pushing the economy into recession.
Follow along for live coverage leading up to the rate hike decision and Fed Chairman Jerome Powell’s news conference.
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Fed rate hike announcement time
The Fed’s decision on interest rates comes out at 2 p.m. ET.
When is Powell speaking?
The Fed Chairman’s news conference will begin 30 minutes after the rate decision is announced at 2:30 p.m. ET.
Stagflation
Stagflation happens when economic growth is sluggish while inflation is high. The term lacks a formal definition or specific threshold, but elements include high unemployment and a weakened economy as prices climb.
Some economists worry that the U.S. will enter a period of stagflation since prices remain high and layoffs are mounting. But so far the U.S. unemployment rate is at a historic low.
Current interest rates for car loans
Interest rates for auto loans have risen since the Fed began hiking rates.
Here are the latest average interest rates for auto loans according to Bankrate data:
- 60-month new car: 6.18%
- 48-month new car: 6.17%
- 48-month used car: 6.83%
- 36-month used car: 6.49%
Interest rates today for 30-year fixed mortgage
As the Fed hiked interest rates, 30-year fixed-rate mortgages shot up in 2022 as the Fed hiked interest rates.
At the start of last year, average 30-year fixed-mortgage rates hovered around 3%, according to Freddie Mac data. Now they’re double that. However, they’ve come down from a November peak of over 7%, the highest level since 2002.
The fall in mortgage rates is spurring demand from homebuyers, USA TODAY’s Bailey Schulz reported citing recent data from the Mortgage Bankers Association.
The housing market cooled tremendously over the last year from the pandemic-era housing boom the Fed’s low-interest rate environment ignited.
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Fed already has January jobs report data
The first jobs report of the year is due on Friday. But members of the Fed won’t have to wait until then to know what the unemployment rate was last month. They’ve already received crucial data from the report that will be used to inform their interest rate decision, the Bureau of Labor Statistics confirmed with USA TODAY.
Fed Chair Powell and other Fed officials cannot disclose any information they’ve received from the jobs report ahead of its release.
Economists surveyed by Dow Jones forecast that employers added 187,000 jobs last month, a decline from December’s 223,000 job gain. The slowdown in hiring would push the unemployment rate up to 3.6% from its current level of 3.5%, according to forecasts.
What does FOMC stand for?
An acronym you’re bound to hear a lot today is FOMC. That stands for Federal Open Market Committee. The FOMC is a group of 12 people who vote on interest rate decisions.
Seven of the 12 people are on the Board of Governors at the Fed (that includes Fed Chair Powell). Another seat is filled by the President of the New York Fed and the remaining four seats are a rotating group of presidents from the 11 other regional Fed banks.
PCE inflation
The latest reading of the Fed’s preferred inflation gauge, the PCE price index, found that prices are 5% higher than a year ago. That’s the lowest annual rate of inflation since September 2021.
JOLTS report
A fresh read of the labor market was just released.
The Job Openings and Labor Turnover Survey (JOLTS) showed that there were 11 million vacancies in December. That exceeded economists’ expectations by nearly 1 million vacancies.
The Fed has been keeping a close eye on the report for signs of a labor market slowdown. Fed Chair Powell has repeatedly said that vacancies are too high and need to come down so that the labor supply is better aligned with demand.
Stock market today
Stocks opened slightly lower ahead of the Fed decision. As of 10:34 a.m. ET the Dow Jones Industrial Average was down by 0.6% while the S&P 500 was down by 0.2% and Nasdaq Composite was nearly unchanged from yesterday’s close.
Will interest rates go down in 2023?
At the Fed’s last meeting in December, no Fed official said they expect rate cuts in 2023. That said some mortgage rates are coming down.
CPI report
The next CPI report will be released in about two weeks on Feb. 14.
How many rate hikes were there in 2022?
There were seven rate hikes in 2022. Four of the seven hikes were in 75 basis-point hikes, two were 50 basis-point hikes and one was a 25 basis-point hike.
Bitcoin price
Bitcoin is down slightly this morning. But overall, the cryptocurrency is having a stellar month. It’s up nearly 40%.
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How Fed rate hikes impact credit card rates
The interest rates banks charge on their credit cards are tied to the prime rate, which is tightly linked to the Fed funds rate.
As the prime rate has risen to 7.5%, the average credit card interest rate has risen from 14.6% in February 2022 to 19.9% last week, according to Bankrate. That has raised monthly interest charges by about $29 to $108 on the average American’s $6,965 credit card balance.
To see how the Fed’s rate hikes have impacted other areas of the economy like home sales, the stock market and more be sure to read Jim Sergent’s piece.
Inflation definition
The Fed’s decision today is largely going to be influenced by inflation.
Inflation is when prices for goods and services rise across the board. If, for instance, gas prices go up a lot but overall prices remain stable the economy would not be experiencing inflation.
Is inflation going down?
The two main U.S. inflation measures, the Consumer Price Index and the Personal Consumption Expenditures price index, are easing.
The latest CPI report found prices for goods and services were 6.5% higher than a year ago. That’s a sizeable improvement from June when annual inflation was over 9%. On a monthly basis, consumer prices fell by 0.1% in December, the first decline since May 2020.
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When is the next Fed meeting?
The Fed’s next meeting is from March 21 to 22.
Fed 2023 meeting schedule
Here are the remaining meetings for the year:
- May 2-3
- June 13-14
- July 25-26
- September 19-20
- Oct/Nov 31-1
- December 12-13
Stock market yesterday
Stocks kicked off 2023 with a bang. The Dow gained nearly 3% last month while the S&P 500 and Nasdaq notched even bigger gains.
The tech-heavy Nasdaq had its best January since 2001.
Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here
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