Fed rate decision in January 2023:

However, he also said there are no plans yet to cut interest rates as inflation remains above the central bank's target. The statement also provided limited guidance on what had been done, and only identified the factors that would go into “adjustments” to the policy.

“The Committee does not anticipate that it would be appropriate to lower the target range until it gains greater confidence that inflation is moving sustainably towards 2 percent,” the statement said.

While the statement outlined factors that policymakers will consider when evaluating the policy, it did not explicitly rule out further increases. One notable change was to remove the lagged effects of monetary policy from consideration. Officials largely believe it will take at least 12 to 18 months for the amendments to take effect.

“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully evaluate incoming data, evolving expectations, and the balance of risks,” the statement said. This language replaced a combination of factors including “the cumulative tightening of monetary policy, the lag with which monetary policy affects economic activity and inflation, and economic and financial developments.”

These changes were part of a sweeping reform through which the Fed seeks to chart a path forward as inflation data points decline while economic growth is resilient.

The statement noted that economic growth was “strong” and noted progress on inflation.
The FOMC statement said: “The Committee believes that risks to achieving employment and inflation targets are moving toward a better balance.” “The economic outlook is uncertain, and the Committee remains very alert to inflation risks.”

Missing from the statement was a key clause referring to “the extent of any further policy consolidation” that might come. Some Fed watchers were looking for language to stress that additional rate hikes were unlikely, but the statement left the question at least somewhat open.

Before the meeting began, markets had expected the Fed to begin cutting its benchmark overnight borrowing rate in March, with May also being a possible starting point.

However, policymakers have been more cautious about their intentions, warning that they see no need to move quickly as they watch the data unfold. Committee members in December signaled the possibility of three quarter-point rate cuts this year, less ambitious than the six cuts futures markets are pricing in, according to CME Group.

Immediately, the committee voted unanimously, for the fourth time in a row, not to raise the federal funds rate. The key interest rate targets a range of 5.25%-5.5%, the highest level in nearly 23 years.

Markets await Fed Chairman Jerome Powell's press conference at 2:30 PM ET for more clues on monetary policy. Immediately after the decision, stocks fell to session lows.

The Fed has been riding a wave of slowing inflation, a strong labor market, and solid economic growth, giving it latitude to start easing monetary policy and being cautious about growth that could accelerate and push prices higher again. Besides raising interest rates 11 times, the Fed also allowed its bond holdings to be reduced, a process that cut more than $1.2 trillion from the central bank's balance sheet.

The statement indicated that the balance sheet runoff will continue apace.

Many economists now embrace a soft landing narrative in which the Fed can lower inflation without torpedoing economic growth.

Separate reports on Wednesday indicated that the labor market is declining, as are wages. Payroll processing firm ADP reported that private companies added just 107,000 new workers in January, a number that was below market expectations but still indicated an expanding labor market. Also, the Labor Department reported that the Employment Cost Index, a measure the Fed closely monitors for signs of inflation coming through wages, rose just 0.9% in the fourth quarter, the smallest increase since the second quarter of 2021.

More broadly, inflation as measured by core PCE prices rose 2.9% in December, the lowest level since March 2021. On a six- and three-month basis, core PCE prices were at or below the Fed's target.

In a separate order, the Fed also announced that it would change its investment policy for both officials and high-level employees. The changes expand those covered to include anyone with access to “confidential FOMC information” and said some employees may be asked to provide brokerage statements or other documents to verify the accuracy of disclosures.

The changes come in the wake of controversy over several Fed officials trading from private accounts at a time when the Fed was making major policy changes in the early days of the Covid pandemic.