Federal Reserve Maintains Hawkish Stance to Tackle Inflation in 2023

The Federal Open Market Committee has been keeping up with economic data and analyzing its next move toward tightening its policy, in the past few months. The FOMC’s hawkish stance is due to the persistently tight liquidity market and high inflation levels. In their last minutes released on Wednesday, all participants had continued to “anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee’s objectives.” Additionally, during the meeting, the committee recognized the necessity of implementing restrictive policies to shape the market and combat high inflation, as the potential upward risk to inflation could further harm the economy under President Biden’s administration.

Despite indications of a decrease in inflation in recent data, the majority of committee members expressed skepticism and emphasized the need for significantly more evidence of sustained progress across a wider range of prices, to be confident in a sustained downward trend in inflation. Following four consecutive increases of 75 basis points in 2022, the Federal Reserve reduced its hike to 25 basis points in January 2023 due to concerns for the overall health of the economy. Albeit, the panel majority had advocated for a 50 basis point hike. Currently, the prevailing belief among many is that the Federal Reserve will be successful in adopting a more stringent monetary policy in a shorter period, thereby helping to bring inflation closer to its target. As of now, the interest rates in the United States stand at 4.75%Indicating, that the rates will remain high for a longer period, particularly from March through May, hoping to retain a similar growth of 5.25% — 5.5–0%, in June.