The Federal Reserve started a practice last year that continues in 2023 to combat inflation by increasing short-term interest rates. The Federal Open Market Committee (FOMC) earlier this month set the rate at a range of 5% to 5.25%.
After setting its current monetary policy early last year, the FOMC has increased rates 11 consecutive times, with a goal of fighting rising inflation that began to show up in 2021, moving the target away from 0%, according to an audiocast report on the U.S. Bank website.
“It’s very unusual for bond markets to decline in two consecutive years, so there may be an appealing opportunity in bonds in 2023 and beyond,” said Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management, during the audiocast.
Earlier this month, the Federal Reserve hinted it might consider ending the current cycle of rate hikes in the wake of the failure of several regional banks, according to a transcript of the audiocast.
The transcript noted the Fed might shift course amid concern about new challenges in the banking industry that could hurt credit extension in the larger market.
At the meeting earlier this month, the Fed noted it could shift course as its actions seem to show signs of success. Inflation began easing in late 2022 and into the early months of this year, according to the transcript.
According to the transcript, the March cost of living rates, as measured by the Consumer Price Index, increased 5% over the 12-month period, a drop of 4.1% from the high-water mark set during the 12-month period that ended in June 2022.
It was noted that the impact of higher interest rates is to ease economic activity in an effort to cool off rising inflation, according to the transcript. This can result in a weakening job market as businesses reduce investments and cut back on hiring amid increased borrowing costs.
