The Federal Reserve’s Open Market Committee (FOMC) provided confirmation of its resolve to lower inflation by raising the cost of overnight borrowing by 0.25% to 4.75%.
This follows a 0.50% increase last December for a total increase of 4.50% since this time last year.
The slower rate of increase is justified given recent softer-than-expected inflation readings since the FOMC’s December meeting. The objective of raising the cost of credit, is to reduce demand for goods and services and return to a period of price stability, a core mandate of our central bank.
The statement provided after the Fed’s meeting indicated that committee members remain hawkish hinting at their resolve to raise rates above 5.00%.
In the post- meeting conference, Chair Jerome Powell acknowledged that signs of disinflation have appeared, but his preferred inflation metric – Personal Consumption Expenditures Price Index core services excluding rents – has stabilized at about 4% over the past year and shows few signs of slowing to the Fed’s target of 2.0%.
A factor keeping the Fed steadfast on lower inflation is the ongoing strength of employment and the resulting impact on wage inflation.
The number of available positions climbed to a five-month high of just over 11 million in December from 10.4 million a month earlier according to the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS.
The ratio of openings to unemployed people rose to 1.9 from 1.7 a month earlier compared to an average of 1.2 before the pandemic. While hiring edged higher in industries like construction, retail trade and health care, layoffs also ticked up.
Separate figures earlier in the week from the ADP Research Institute showed private hiring moderating last month to the slowest pace in two years, noting inclement weather in the Midwest during December.