We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. Learn more.

By:
Editor:
Published: Feb 01, 2023 4 min read

Money is not a client of any investment adviser featured on this page. The information provided on this page is for educational purposes only and is not intended as investment advice. Money does not offer advisory services.

Federal Reserve Board Chairman Jerome Powell speaks during a news conference
Getty Images

The Federal Reserve's battle with inflation continued Wednesday with an interest rate hike of 25 basis points (or 0.25%) and an indication that more increases are likely on the horizon.

The announcement was expected and smaller than the hikes investors have gotten used to recently. In December, the U.S. central bank raised rates by a half percentage point; the four hikes before that were by 75 basis points (0.75%). The latest increase brings the federal funds rate, the rate at which banks borrow money from each other overnight, to a target range of between 4.5% and 4.75%.

Here's what investors need to know.

Ads by Money. We may be compensated if you click this ad.AdAds by Money disclaimer
The Fed just announced another rate hike
Work with a licensed Rocket Mortgage (NMLS #3030) representative in your state today.
HawaiiAlaskaFloridaSouth CarolinaGeorgiaAlabamaNorth CarolinaTennesseeRIRhode IslandCTConnecticutMAMassachusettsMaineNHNew HampshireVTVermontNew YorkNJNew JerseyDEDelawareMDMarylandWest VirginiaOhioMichiganArizonaNevadaUtahColoradoNew MexicoSouth DakotaIowaIndianaIllinoisMinnesotaWisconsinMissouriLouisianaVirginiaDCWashington DCIdahoCaliforniaNorth DakotaWashingtonOregonMontanaWyomingNebraskaKansasOklahomaPennsylvaniaKentuckyMississippiArkansasTexas
View Rates

What's happening now

The central bank has been hiking interest rates since early last year to fight record-high inflation. High interest rates make it more expensive for financial institutions to borrow money, and a ripple effect makes borrowing money expensive for businesses and consumers as well. That can impact companies' earnings and outlooks, which can in turn weigh on their stock prices. Prices of financial assets — like stocks, bonds and crypto — have been hurting amid the interest rate hikes.

Stocks immediately fell Wednesday afternoon following the Fed's announcement before quickly rebounding.

"No big surprise in today's announcement, either in the level of rate increase or in the accompanying language," Melissa Brown, global head of applied research at financial analytics and index provider Qontigo, said in an emailed statement. "If traders were hoping for indication of a rate cut, they were disappointed."

Others are optimistic and say the Fed is nearing the end of the tightening cycle.

"They are getting ready to sit tight while the economic data catches up to the policy," Charlie Ripley, senior investment strategist for Allianz Investment Management, said via email. "Slowing the pace of rate hikes is a clear sign that the Fed is getting comfortable with the idea that the prescribed policy for the economy is finally starting to work."

What's next

Jerome Powell, the chair of the Fed, signaled that the central bank is maintaining its aggressive stance against spiraling consumer prices.

While the Fed said in its press statement that "inflation has eased somewhat," it also said that inflation remains elevated. Inflation fell to 6.5% on an annual basis in December, still much higher than the Fed's target range of 2% in the long run. As such, the Fed anticipates "ongoing increases in the target range will be appropriate," according to the statement.

"The inflation data received over the past three months show a welcome reduction in the monthly pace of increases," Powell said during a news conference. "And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path."

Ads by Money. We may be compensated if you click this ad.AdAds by Money disclaimer
Mortgage Rates are about to go up, according to The Fed
Work with a licensed Rocket Mortgage (NMLS #3030) representative today.
View Rates

What this means for you

Financial markets have been volatile of late, with the S&P 500 ending 2022 down nearly 20%. The index was up around 8% for the year as of Wednesday afternoon, but experts predict risks remain for the stock market, and that investors should likely brace for more ups and downs.

Financial advisors tend to recommend sticking to an investment plan that takes into account your risk tolerance, goals and time horizon. That's because timing the market is extremely challenging — and near impossible to do perfectly — for both everyday investors and professionals, especially when markets are facing so much uncertainty.

Ads by Money. We may be compensated if you click this ad.AdAds by Money disclaimer
Worried about protecting your hard-earned financial assets?
Gold IRAs help you protect your investments by providing the asset diversification and stability you need. Click below to start investing today!
Invest in Gold

More from Money:

'Stock Prices Will Crater' if the U.S. Defaults on Debt, Economist Warns

When Will the Stock Market Recover? Here’s What Experts Predict

7 Best Online Stock Trading Platforms