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March 22, 2023US MONETARY POLICY At its scheduled Federal Open Market Committee (FOMC) meeting, the Federal Reserve announced that it will raise the target range for the federal funds rate by 25 basis points to 4.75% to 5.0%. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May.
While job gains have been robust and the unemployment rate remained low in recent months, recent economic indicators point to modest growth in spending and production. The war in Ukraine continues to put upward pressure on inflation and continues to weigh on global economic activity.
US inflation has eased in recent months but remains elevated. The United States Consumer Price Index (not seasonally adjusted) for All Urban Consumers increased 6.0% year-over-year in February 2023. This was below the 6.4% increase reported in January 2023, the smallest increase since the period ending October 2021.
Monetary tightening is likely to result in tighter credit conditions for households and businesses and weigh on economic activity, employment growth and inflation.
The Federal Reserve projects US economic activity to increase 0.4% in 2023, 1.2% in 2024 and 1.9% in 2025. Compared to the December projections, this represents a slight downgrade for 2023 and 2024 but an upgrade for 2025. Inflatio is expected to average 3.6% this year before declining to 2.6% in 2024 and 2.1% in 2025. Inflation projections are also slightly upgraded for the next two years from the December projections, and was unchanged for 2025.
The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2.0% range over time. The Committee will continue to monitor economic developments and is prepared to adjust the monetary policy measures as appropriate, taking into account the cumulative tightening of monetary policy as well as the lags with which monetary policy affects economic activity and inflation. The next scheduled FOMC meeting will be held on May 2-3, 2023.
Source: US Federal Reserve, FOMC Statement; Summary of Economic Projections (March 2023)
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