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Federal Reserve boosts policy rate by 25 basis points, signals more hikes ahead

Feb. 01, 2023 2:00 PM ETBy: Liz Kiesche, SA News Editor233 Comments

Fed Chair Jerome Powell Holds News Conference Following Federal Open Market Committee Meeting

Chip Somodevilla

As expected, the Federal Reserve hiked its policy rate by 25 basis points to 4.50%-4.75%, slowing the rapid tightening campaign that ratcheted up its rate by 425 bps in 10 months.

It repeated its stance that ongoing

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Comments (233)

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d
So much pain coming when inflation decides not to go away.
m
@dstb wait a second, I thought inflation was temporary. Do you mean to tell me prices won’t go back down? 🤣😉
l
@mantles Yes, these are the same people that assured us of "transitory" inflation. Reminds me of the saying to keep silent and be thought a fool than speaking and remove all doubt.
m
@linkdonald yes seriously! The second Yellen uttered those words I almost fell outta my chair. How stupid do they think we are by saying shit like that??
s
The FED is lender of LAST resort. Covid-19 giveaways created never before need for creative financing (QE the lending of money that doesn't exist (usually at .25% rate). All of this funny money in the system is causing this inflation. Removing it all at once could destroy the financial markets so they are letting it time off by not renewing the loans once they are paid off. Their biggest infusions occurred between Apr and Jun. Thus, by the end of Jun most of this excess will be out of the system. When the FED stops lending the public will once again be asked to finance our governments overspending habits. Thus if you feel the 4.75% interest rate is too high how much would you charge to hold our career politicians debt?
C
@sdavid04191, the Fed will continue to maintain a loftier interest rate level to temper historical debt financing via an elongated inflation curve while (2) maintaining a high enough rate to continue enticing foreign investment in the same debt (newer Treasury issues) vis-a-vis other alternatives. Sadly stated, in a world full of despair and uncertainty, the almighty green back still reigns supreme so long as the Fed ensures that the Treasury can continue to issue the best return/lowest risk debt. I fully realize they are two separate entities, but they work together...it's painfully obvious.
m
C
I’m content keeping the short-term CD and Treasury ZCB ladder going for at least the next 3-6 months. I’ll gladly bag a guaranteed 4.3-4.6% and keep the powder dry during what still should be an up and down market for the first half of ‘23. Slowly drip back into monthly paying stock and bond ETFs once they establish a bottom channel (which some that I track are starting to show). I’m not a bear or bull…just a retired investor trying to do my best on a fixed income.
damcooldav3 profile picture
@Centerfield12 free money with CDs is nice :)
J
10 trillion of economic expansion in 24 months and I'll get is a bear market rally and this stupid t-shirt.

Vix clocking in on a blow-off 18. That sure sounds like a great setup for another 20% move, but which way?
T
Should have raised 50bps - can’t imagine how much the market would have rallied on that new. We are in a fascinating time of bad earnings are good news, bad guidance is good news, more rate hikes are good news, holding them for longer is good news, layoffs are good news, consumer debt at an all time high is good news, consumer savings at 2x decade low is good news, loan repayments coming back online in June to squeeze consumer further is good news. Everything is good news and rallies the market, what could go wrong?
shaderhacker profile picture
@Tdog88 It doesn't matter what the news is. What matters is sentiment. We saw the exact opposite of what you are saying last year when any good news was a sell-off. We are in a bull market now so stop the complaining, buy instead of sell and enjoy the ride up.
ComputerBlue profile picture
@Tdog88 equities aren’t attractive here w rates moving up..isn’t fully reflected yet but it will eventually.
John McCoy profile picture
"in an effort to convince financial markets that the Fed is intent on keeping rates high to bring down inflation."

But here's the thing, rates are NOT high. Sure, they're higher than they've been in a while, but higher does not mean high. We're just abound entering into what I consider to be a normal rate environment, and people are already talking about cuts. If rates stay where they are for say 2 years, 5ish % on the Fed Funds rate is not going to destroy markets or housing.

In fact, I would tell anyone looking to buy a house right now to go ahead and buy. Mortgage rates at 5ish% on a 15 year or 6ish% on a 30 year are NORMAL. My first mortgage was 7.125% in 2000, and I was happy to have it. My parents bought a house in the early 1980's at 14% and were happy to have it, and still sold the house for 3X what they paid 20 years later.

If the Fed does indeed begin to cut later this year or early in 2024, the housing demand we saw in 2020-2021 will flood right back into the market (renters are sick of rent increases, and they've had longer to save up the ol' down payment) and housing prices go nuclear. Boys and girls, don't listen to all the MSM sources telling you to wait a year or two - buy that house now kids! In a year or two when rates come down, refinance into a lower rate if you want and enjoy your rising equity!

How sure are we that rates will come down again? Well, lets just say the US Federal government requires low rates to keep massively over spending. Why do you think Jerome Powell is such a "dangerous man", at least according to the esteemed Senator from Massachusetts Elizabeth Warren?? Yes, rates will come down at the soonest possible moment, the government needs them to.

Oh, and buy quality stocks too.
Wez profile picture
@John McCoy

Not sure about the buying of stocks right now part, but I do find the rest of your comment spot on. Emerging markets have been doing well this year, I have gone long some areas in that asset class.
ComputerBlue profile picture
@Wez Buffett indicator still says avoid most US stocks..they're not cheap.
Insouciant Investor profile picture
@John McCoy

I agree.

When I was in college interest rates were around 5% and it was normal. I'm not sure what inflation was at but I know it wasn't 2%. My guess is it was around 5% just like the interest rates. Nobody had any problems with this.

Why can't the Fed just aim for 5%-6% and call it a day? Surely, they have to be getting close.

Even retirees liked it when interest rates were 5% because bonds were not completely useless. Most people would allocate 60% to stocks and 40% to bonds and it didn't matter that stocks had pitiful dividend yields because that is what bonds were for.
H
Bulls make money - bears make money . Perma bulls will get slaughtered this decade
H
Now there will be no more lollipops for the market, the fed story is over.
P
Good excuse for businesses to raise their prices...
Absolute disaster for the bears. To bad so sad. Don't worry every 2-4 years there is some pullback that one can re-enter and invest. It happened in 2016...18....20...22.

But ironically everytime there is that big pullback, the bears never invest.
W
@ddssq

I really don't understand all this "the bears" trash talk. It means absolutely nothing. It's trolling, pure and simple. I'm not a bear. Or a bull. I'm an investor.
V
@Wilbodave for some you either go all in or you’re a bear 😅
mizesa profile picture
@ddssq Absolute victory for the bears. Powell didn’t spook them, giving them the confidence to continue to pump up P/E ratios way above historical norms, even though earnings are falling. Eventually it’s all about earnings and bulls have forgotten that. We Bears haven’t. Bulls will eventually panic as they always do and we will get to take advantage.

And bears of course do invest at bottoms. Look at HMLPF. Bulls were dumping it at $13. Why not invest? Bears also invest, but only when conditions are right. Also, bulls were panic selling tech in October so we bears bought. How much did QQQ rise since then? We bears know how to trade. We don’t fight the trend praying that someday we’ll get back to even as bulls do.

Bulls are again buying tops as always. At least the retail bulls. They panic sold in October and are panic buying now.
lutherhgillis_pi profile picture
All the NASDAQ crap flies today. Seeing that can make one believe that still too much hot money sloshing around in the system.
k
Narrative remains the same, majority opinion continues to anticipate Powell is going to shoot a bullet with another bullet and accomplish the "soft landing."

I don't see the 'disinflation' he seems to, on the horizon, way too many labor and housing cost increases on the way.

The weather has been remarkably helpful to all of us however, as the NE US and Europe have had a mild January which frees up capital for other purposes and helps keep energy prices low.
R
The bear has long been over. Many are in denial, but the bear has been finished for a long time.
mizesa profile picture
@RSDRIP198 No bulls are in denial. They believe the current bear market rally is the beginning of a new bull market. Expanding P/E ratios as earnings fall is a recipe for disaster.
H
credibility has been lost. The bond market is in control. GLHF fed.
youngdividend profile picture
Are we seeing the new Powell Put?
0880
01 Feb. 2023
more rate hikes ahead?

I guess the banks haven't gotten enough interest income baked into their future yet.
ComputerBlue profile picture
Pump up those metals and stocks!!
FirstFIREWealth profile picture
The Fed has pivoted! Higher we march. Bears get slaughtered! 🚀🚀 Bulls ALWAYS win over the long term.
mizesa profile picture
@FirstFIREWealth Only amateur bears get slaughtered. We old grizzly bears continue to cheer on the bull rocket ride taking P/E ratios further into the stratosphere as earnings decline. We know that someday gravity will win. We only need to be patient.
ComputerBlue profile picture
@FirstFIREWealth bears? Have you looked at the vix or 0dte call vol? The bears are in hibernation.
mizesa profile picture
@ComputerBlue Yes the perma bulls are very confused. There may be a few perma bears but they are a very small minority. Right now the bulls are in control and are fearless. They believe that stocks are going to the moon even without QE and ZIRP. They don’t care that earnings are falling. They believe that we are in a new bull market. They are in the denial phase.
davenchop profile picture
seems like a whole lot of upset bears out there
mizesa profile picture
@davenchop You mean a lot of excited bears don’t you? The bears I know are ecstatic! There dreams are coming true. The bulls are again pumping up P/E ratios way above historic norms as earnings fall. Eventually reality will dawn. Bears only need to be patient. Bears don’t go fishing for salmon until they swim upstream and get trapped.
C
@davenchop Theres like... maybe 2 bearish posters in these comments. But like 77 extremely over the top "LOOK AT ALL DOSE BEARS!" posts, lol. I guess there's a lot of pent up frustration since Jan of last year, and now everyone is a genius now that the market is recovering.

I'm enjoying it, but its just funny to see the same post 10000x. We never truly grow up do we?
W
@Cipherr

There are a lot more childish people posting on investing boards lately. I think the reddit kiddies started it. It's just trolling. It's like they think it's a contest. They actually think they're somehow in competition with the bears. Of course, there are bear people who do it too.

That and the fool that came up with the word "stonks." I auto-mute anyone who uses that word (watch now, someone I probably already have muted will jump in and say "stonks" to me).
Trader 611 profile picture
SPY only -11.5% from ATHs. In other words, nothing has even happened yet. 2% move up in less than an hour? Blow off top or are we going to all time highs? Either way, there will be a day of reckoning at some point. The longest bull market in US stocks in HISTORY will eventually end and end badly.
e
@Trader 611
The bull market was a bear market for over a year.
W
@eurdone88

If I understand, a bear market doesn't end until the index reaches a new high. I think we're technically still in the bear market.
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