Get ready: Federal Reserve eyes 5%-plus interest rate for 2023

Plenty of financial gurus lauded the Federal Reserve for hiking interest rates and its stated goal of ratcheting down inflation. After multiple hikes in 2022, the Fed intends to increase the target rate even further in 2023.

How high? Seventeen out of 19 Fed officials on the monetary policy committee expect a target interest rate as high as 5.25% at some point this year.

The first of multiple basis point increases to get there could could kick in as early as February depending on inflation. (The Fed last raised the target rate by 25 basis points in mid-December.)

The good news: Inflation’s slowing down in some areas. The year-over-year inflation rate is just over 7%. Not good for sure, but much better than last June when the year-to-year inflation rate stood at 9.1%. Similarly good numbers in January and February might encourage the Fed to ease up on hikes.

Now the bad news: A key factor in inflation dropping has been the White House tapping the strategic petroleum reserve to drive down gasoline and diesel prices at the pump. Those price reductions could be temporary. Domestic oil & gas companies don’t intend to ramp up production anytime soon, largely due to costly EPA regulations and President Biden’s freeze on drilling leases on federal lands.

Inflation remains CFOs’ chief concern

Financial chiefs are worried about a variety of economic issues in 2023. But the number one concern remains inflation, with labor costs and availability close behind, according to the Richmond Federal Reserve’s most recent CFO Outlook.

Whether Fed chairman Jerome Powell thought rate hikes could really undo the damage done by trillions of dollars in Congressional pandemic and climate change spending is up for debate. After all, increasing the money supply by 40% in a two-year period means consequences for everyone, and we’re seeing the results in higher costs for practically everything.

At the very least, Powell and company’s moves helped steady the dollar. And some on Wall Street are worried the central bank won’t (or can’t) afford to bail out overleveraged “too big to fail” institutions once the dominoes start falling.