The Fed raised its benchmark federal-funds rate by a quarter point to a range between 4.5-4.75% to try and slow the economic growth to a below-average pace to help weaken demand and attempt to restrain inflation. The economy appears to have more momentum than previously anticipated with January reporting a booming labor market with employers adding 517,000 jobs last month, and the unemployment rate falling to 3.4%, the lowest level since 1969. As more reports come in, Fed officials are looking to see if there is an increase in consumer demand leading to stronger economic growth that could have inflation continuing to rise in the start of 2023. If reports continue to show strong growth this could force the Fed to continue to raise interest rates to 5.25% in 2023 and hold it there until the end of the year.
Officials must now decide if there is more that needs to be done to slow the economy by raising interest rates and keeping them higher longer, or if the next inflation problem could come from the economy continuing to add more than 200,000 jobs a month without an increase in the supply of workers, making the labor market tighter each month.
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