As demonstrated in Table 1, it is evident that the FOMC’s initiation of interest rate hikes on March 17, 2022, resulted in a delayed but discernible impact on the Consumer Price Index (CPI) and Personal Consumption Index (PCE). These indices only began to show signs of peaking in June 2022, indicating a delay before the effects of the initial interest rate hikes took hold.
In a much-anticipated move, the Federal Open Market Committee (FOMC) announced a rate hike of 25 basis points (bps) on July 26. This aligns with the FOMC’s plan, as expressed by Chairman Jerome Powell, to bring inflation down to the central bank’s 2% target. In the meeting, the FOMC also unanimously agreed to make data-driven decisions.
This thorough assessment of the impact of rate hikes aligns with the FOMC’s emphasis on assessing “the totality of the incoming data.” Such a prudent approach makes sense, given that changes in interest rates typically take around 12 months to impact the economy fully.
