The Federal Reserve’s policy committee on Wednesday, pointing to \
A smaller rate hike to kick off 2023 easily can be viewed as the Federal Reserve’s nod to the numbers indicating inflation is a bit more under control.
A rate hike of any size, though, still means that shoppers, home buyers, car buyers and others are going to pay far more to borrow than they did just one year ago. Far more.
Borrowers, after all, are getting socked in two ways. People are paying higher interest rates after the Fed’s nearly yearlong effort to stop inflation from burning out of control and they’re borrowing to buy goods and services — like cars and trucks — that often cost significantly more than they did a year ago.
The Federal Reserve’s policy committee on Wednesday, pointing to «inflation risks,» decided to raise rates by 25 basis points. The move drives the target for the short term federal funds rate to a range of 4.5% to 4.75%. It is the eighth rate hike since March 2022.
In its statement Wednesday, the Fed indicated that it anticipates that «ongoing increases» will be appropriate to combat inflation.
The Fed stated: «Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated.»
Fed watchers follow the federal funds rate, the rate banks charge each other to borrow or lend excess reserves overnight. In early 2022, the federal funds target range had been in 0% to 0.25%. Back in 2020, the Fed brought rates to these extremely low levels to counteract the economic shock that hit at the start of the pandemic.
The Fed’s last rate hike in December was a half-point. The Fed raised rates by 75 basis points at each meeting in June, July, September and November. Earlier in 2022, the Fed raised rates by 50 basis points or 0.5 percentage points in May and by 25 basis points in March.
«The job is not fully done,» Federal Reserve chairman Jerome Powell said at a news conference Wednesday. He indicated that the expectation is that ongoing rate hikes will be appropriate because inflation remains high, even though inflation has pulled back somewhat already.
The nagging fear is that too much Fed tightening ahead could drive the U.S. economy into a recession later this year or next.
The Fed’s goal is to make it less attractive to borrow and cool down spending and the economy. Whether the Fed has inflation under more control, though, is anyone’s best guess at this point.
«That’s the million dollar question,» said Justin Kimpson, senior director for the Ford Resource and Engagement Center on the east side of Detroit.
Kimpson expects that it could take until spring or summer to get a clearer picture of where inflation and prices for gas, groceries and other goods are headed.
Many families have visited the food pantry at the engagement center, he said, and sought other free services as they’re dealing with rising costs. The center, which opened in 2017, works with more than 15 nonprofit partners on-site.
«It’s affecting everybody,» Kimpson said. «Everything about life that you touch is going up.»
Jeremy Wolfe, owner of Monarch Market Cafe in Huntington Woods, said he has had to raise his prices on many items two times since opening in late 2021. He’s dealing with higher wages as many companies now pay $15 to $20 an hour. Prices skyrocketed for eggs, milk and cheese and other ingredients used to make breakfast items, like breakfast burritos.
