The Fed Raises Interest Rates Again in Early 2023, Highest in 16 Years

The Fed raised its interest rate to a range of 4.5%-4.75% in early February 2023. This is the highest level in 16 years, specifically since October 2007, as shown in the graph.

"Recent indicators point to moderate growth in spending and production in the United States. The labor market has strengthened in recent months, and the unemployment rate remains low. Inflation has eased somewhat but remains elevated," the Fed Committee said in its press release on Wednesday, February 1, 2023.

Since the beginning of 2022, the US central bank has aggressively raised its benchmark interest rate eight times, accumulating an increase of 450 basis points (bps).

The Fed stated that this policy aims to curb US inflation to 2% (year-on-year/yoy). As of the end of last year, inflation generally remained at 6.5% (yoy).

In December 2022, the US experienced food inflation of 10.4% (yoy), with a breakdown of 11.8% (yoy) for home food inflation and 8.3% (yoy) for away-from-home food inflation.

US energy inflation reached 7.3% (yoy) in December 2022, with a breakdown of 0.4% (yoy) for energy commodity inflation and 15.6% (yoy) for energy services inflation. This was followed by inflation for all goods and services excluding food and energy at 5.7% (yoy).

Seeing that US inflation is still far from the target, the Fed hinted at the possibility of further raising its benchmark interest rate.

"In determining the pace of future interest rate increases, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the Fed Committee said.

"In addition, the Committee will continue reducing its holdings of Treasury securities and agency mortgage-backed securities. The Committee is strongly committed to returning inflation to its 2 percent objective," it continued.