Fed Approves Quarter-Point Rate Hike, Signals More Increases Likely
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Fed Approves Quarter-Point Rate Hike, Signals More Increases Likely

Officials are slowing interest-rate increases as they debate when to pause

By NICK TIMIRAOS
Thu, Feb 2, 2023 9:02amGrey Clock 4 min

WASHINGTON—The Federal Reserve approved an interest-rate increase of a quarter-percentage-point and signalled plans to raise rates again next month to continue lowering inflation.

The decision Wednesday followed six consecutive rate rises that were larger, including an increase of a half-point in December and a 0.75-point increase in November.

Officials nodded to recent improvement in inflation readings but didn’t significantly alter their guidance in a policy statement released after the meeting regarding coming rate moves.

“The committee anticipates that ongoing increases” in interest rates “will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive,” said the statement, using the same language included in policy statements since last March.

The latest increase caps a year in which the Fed lifted its benchmark federal-funds rate from near zero to a range between 4.5% and 4.75%, a level last reached in 2007. That extends the central bank’s most rapid pace of rate increases since the early 1980s to fight inflation, which hit a 40-year high last year.

One big question heading into Wednesday’s meeting was the extent to which recent economic data had given Fed officials more confidence that inflation and wage pressures had peaked.

In December, most of them penciled in raising the fed-funds rate to a range between 5% and 5.25% this year. After the hike they approved Wednesday, that projection would imply additional quarter-point increases at the Fed’s meetings in March and May, followed by a pause in rate rises.

Many officials had repeated in recent weeks that they still saw such a rate path as appropriate given strong wage pressures, a tight labour market and high service-sector inflation. But officials also said they would base their decisions on how the economy performs in the coming months.

“We can now say for the first time, the disinflationary process has started,” said Fed Chair Jerome Powell at a news conference after Wednesday’s meeting. But he added, “The job is not fully done.”

Mr. Powell said the central bank was trying to manage the risk of raising rates too much and causing unnecessary economic harm with that of not doing enough to bring down inflation. In repeating his longstanding view that the latter mistake would be harder to fix, Mr. Powell said he didn’t want to be in a position where six or 12 months from now, after a halt to raising rates, the Fed would belatedly conclude that it hadn’t done enough to bring down inflation this year and would have to raise rates higher.

“We’re going to be cautious about declaring victory and sending signals that we think the game is won,” he said. “Certainty is just not appropriate here.”

The fed-funds rate influences other borrowing costs throughout the economy, including rates on mortgages, credit cards and auto loans. The Fed is raising rates to cool inflation by slowing economic growth. It believes those policy moves work through financial markets by tightening financial conditions, such as by raising borrowing costs or lowering prices of stocks and other assets.

Officials have been guarded in recent weeks about providing any guidance that might ignite market rallies that could undermine their efforts to fight inflation.

In recent weeks, markets have rallied partly because investors anticipated that the Fed would slow its rate increases this week and remove uncertainty over the rate outlook, which reduces interest-rate volatility. Lower volatility can ease financial conditions.

Markets have also been cheered by news that inflation and wage growth might have peaked last year, which could make the Fed more comfortable in pausing rate increases. Since Fed officials met in December, economic activity has been mixed. Consumer spending has moderated, and manufacturing activity has weakened. But hiring has held steady, pushing the unemployment down to 3.5% in December, a half-century low.

Investors in bond markets increasingly expect that the Fed will cut interest rates later this year because of a sharp slowdown in economic activity that lowers inflation faster than policy makers expect.

Fed officials and some economists, meanwhile, are concerned that the recent decline in inflation could reflect the long-anticipated easing of supply-chain bottlenecks—and that might not be enough to bring inflation down to the Fed’s 2% goal.

“I’m somewhat worried that the market view is based more on hope,” said Karen Dynan, an economist at Harvard University who served in the Obama administration. “Labor markets still look really tight.”

Officials’ deliberations over how much more to raise rates this year and how long to hold rates at some higher level could hinge over how much they think their past increases will slow the economy this year. Debates could also turn on the degree to which wage and price pressures might slow without significant weakness in the job market.

Officials agreed to slow rate rises to gain more time to study the effects of their moves.

Inflation fell to 4.4% in December from 5.2% in September, as measured by the 12-month change in the personal consumption expenditures price index excluding food and energy. Though still above the Fed’s 2% goal, it moderated in the October-to-December period to an annualised 2.9% rate.

“Inflation has eased somewhat but remains elevated,” said the Fed’s policy statement.

Overall inflation is slowing largely because prices of energy and other goods are falling. Large increases in housing costs have slowed, but haven’t filtered through to official price gauges yet. As a result, Mr. Powell and several colleagues shifted attention recently toward a narrower subset of labor-intensive services by excluding prices for food, energy, shelter and goods.

Mr. Powell has said prices in this category, which rose 4% in December from a year earlier, offer the best gauge of higher wage costs passing through to consumer prices.



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With US$40 million already committed, the Global Talent Fund is attracting investor attention with a strategy focused on building globally scalable consumer brands alongside high-profile talent. 

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A new investment fund targeting celebrity-founded consumer brands has secured US$40 million in commitments and is rapidly approaching its US$50 million fundraising target, signalling growing investor appetite for alternative opportunities beyond traditional asset classes. 

The Global Talent Fund, which has a maximum raise of US$100 million, focuses on building and investing in consumer businesses alongside celebrities, athletes, and influential personalities who play an active role as co-founders rather than simply endorsing products. 

The strategy is based on the belief that changes in consumer behaviour, particularly the rise of social media and digital engagement, have fundamentally altered how brands are built and scaled. 

GTF founding partner Jeremy Hunt, who is helping lead the fund’s strategy, said consumers increasingly feel connected to personalities they follow online and are more willing to support products developed by those individuals. 

“Consumers are searching for content to engage with, and when a celebrity they like or follow takes them on the journey of creating a product or brand, they genuinely feel part of that process,” he said. 

The fund is targeting high-growth consumer sectors including wellness, hydration, beauty and recovery, areas Hunt believes continue to benefit from strong global demand and ongoing innovation. 

Rather than backing celebrity endorsement deals, the fund is seeking businesses where talent is deeply involved in product development, brand creation and long-term growth. 

According to Hunt, authenticity remains one of the biggest differentiators between successful celebrity-backed brands and those that fail. 

“The consumer can see clearly if someone is simply being paid to promote a product,” he said. “The winners are typically the brands where the celebrity has genuinely helped build the business from the ground up.” 

The model has attracted support from several prominent Australian investors and business families, reflecting broader interest in alternative investments with global growth potential. 

Hunt said consumer brands offered a level of tangibility that many investors found appealing. 

“Consumer brands are what we touch, feel, smell and taste every day,” he said. “Our investors understand the growth potential in the model, but they also want to be part of the journey.” 

The fund’s rapid progress towards its fundraising target comes amid growing recognition that celebrity influence, when combined with strong commercial execution and scalable business models, can create significant enterprise value. 

With several high-profile celebrity-founded businesses generating billion-dollar exits in recent years, supporters of the strategy believe the opportunity remains in its early stages. 

For more information, contact marc@kanebridge.com.au

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