The Federal Reserve is expected to raise interest rates by half a percentage point at the end of its two-day policy meeting on Wednesday to continue its fight against inflation.
Inflation, as noted in Tuesday’s CPI report, has eased to 7.1% in the 12 months to November from a blistering 9.1% pace in June, which is giving the Fed breathing room to shrink the size of its rate hikes. However, the Fed’s still a long way from its 2% inflation goal, which means this is unlikely to be the last rate increase, economists say.
The Fed has already raised rates six times this year to a range between 3.75% and 4% from near zero at the start of the year. The last four increases were supersized at 0.75 percentage point each. With another half-point hike expected, the cumulative increase to date would rank among the most aggressive increases since the 1980s to try to tame the highest inflation in 40 years.
Along with an expected rate hike, the central bank will release its summary of economic projections for this year, 2023, and the subsequent two years, as well as over the longer run. The Fed releases these projections four times each year.
Little relief for those in debt:Fed poised to announce a smaller rate hike but impact still looms large
Most economists expect the Fed will raise its median 2023 inflation forecast as well as the level it sees its short-term benchmark fed funds interest rate to be.
Stock market today
Major stock indexes are edging higher as investors await the outcome of the Fed’s policy meeting this afternoon.
The broad, benchmark S&P 500 was last up 20.32 points, or 0.51%, at 4039.97; Dow Jones Industrial Average up 134.72 points, or 0.39%, at 34,243.36, and the Nasdaq-100 up 66.56 points, or 0.59%, at 11,323.37.
—Medora Lee
What about the 10-year treasury?
Thirty-year fixed-rate mortgages trace movements in the 10-year Treasury note and are affected by the Fed’s key short-term rate only indirectly. On Tuesday, yields on the 10-year fell below the psychological 3.5% level to 3.488%, from 3.611% the day before. Bond yields move inversely to bond prices.
–Medora Lee
What’s a Fed pivot?
A Fed pivot is when the Fed reverses its current policy.
In this case, since the Fed is in an interest rate hiking cycle, it would mean the Fed would start lowering rates. That’s not expected to happen any time soon, but investors are keen to sleuth out clues as to when that could happen. Some economists think this could happen in the second half of 2023 while others say not until 2024.
–Medora Lee
How will Fed move affect higher-interest-rate savings accounts?
For savers, the rising interest rates mean deposit rates are reaching highs not seen in more than a decade, and they’re likely to continue climbing as the central bank continues to hike.
“However, future rate gains may be limited to savings accounts and short-term CDs,” or certificates of deposit, said Ken Tumin, a senior industry analyst at Lending Tree and founder of DepositAccounts.com. “Long-term CD rate gains have slowed and in a few cases, rates have declined in a way that has been similar to long-dated Treasury yield declines.”
–Medora Lee
How many federal reserve banks are there?
There are 12 Federal Reserve Banks, with a total of 24 branches nationwide. These banks serve as the “operating arms” of the Federal Reserve System.
Each bank operates in its own geographical region of the country and collects data on the businesses and needs of the communities it serves. That data is then used to help craft the monetary policy dictated by the Federal Reserve.
–Medora Lee
What should we expect the Fed to do and say today about rates?
Economists expect the Fed to raise its short-term benchmark fed funds rate by a half percentage point, which would be a step down from its 0.75-percentage point increase at each of the last four policy meetings.
In addition to the Fed’s policy statement announcing the rate move, the Fed’s releasing its summary of economic projections this month. In it, economists expect to see the Fed boost its forecast for how high it sees the fed funds rate next year. Most economists expect the Fed to raise its median forecast for the fed funds rate to around 5% from 4.6% in September, the last time it released its projections.
— Medora Lee
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When does Fed announce the next rate hike?
The Fed’s decision is announced at 2 p.m. ET on Wednesday.
— Elisabeth Buchwald
What time does Powell speak today?
Fed Chairman Jerome Powell’s media conference will begin at 2:30 p.m. ET on Wednesday. USA TODAY economics reporter Paul Davidson will cover the event in person.
— Elisabeth Buchwald
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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.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected].
Paul Davidson is economics correspondent for USA TODAY.
