SFS Insights

What a Difference a Year Makes

February 3rd 2023

As expected, the Federal Open Market Committee (FOMC) raised target rates by 0.25% to a range of 4.50% - 4.75%. Just one year ago, rates were between 0.0%–0.25%. What a difference a year makes.

A year ago today, the federal funds rate was close to zero, consumer price inflation already reached 7.9%, and yet the 10-year Treasury yield was 1.79%. Inflation clearly had more upside and from this vantage point, the Fed was late in pursuing price stability.

According to Wednesday’s statement, the FOMC is comfortable accepting that inflation has eased. This is a micro-step toward a pause which will likely not happen until later this year, since the Committee is expected to raise rates at least one more time.

When investors compare the February statement with December’s, they should conclude the days of any hikes greater than 25 basis points are over for this cycle. It seems the Committee no longer worries about the “pace”, but is now focused on the “extent” of future increases.

After Wednesday’s decision, the fed funds upper bound is higher than the latest reading on the core deflator. Inflation is poised to ease further in the coming months, which will give the Fed some leeway to end its rate hiking campaign. History shows us that markets respond favorably after the end of a rate hiking cycle.

Robert Schermerhorn, CFP®

Jamie Usas, CFP®

Operations Manager

Amanda Friedman

Wealth Consultant

Andrew Chapman, CFP®

Operations Research Associate

Lauren Bliss

Office Coordinator

Saratoga Financial Services

18 Division Street, Suite 305

Saratoga Springs, NY 12866

Phone: (518) 584-2555

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