Looks Like Just a Quarter-Point Fed Hike Up Next

Inflation is cooling, as the Consumer Price Index report for December shows: dipping to 6.5% annually, from 7.1% the month before. And so are expectations for just a minimal increase in the Federal Reserve’s benchmark interest rate, when its policymaking body announces its latest action February 1.

A month ago, the futures markets predicted that the Fed would boost the rate by half a percentage point at the upcoming meeting. But now, the betting is for just a quarter-point.

This follows an aggressive regimen of increases that began in March 2022, including four consecutive 0.75-point boosts, ending in November. Then came a downshift. The most recent hike, in December, was for a half-point.

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Several Fed officials have voiced public support for a small increase. Mary Daly, president of the San Francisco Fed, said on Monday that the central bank is considering a quarter-point—as she also warned that now is “really too soon to declare victory” over inflation. She reflected her colleagues’ views, as expressed at the last Fed meeting’s member poll, called the dot plots, that the rate would exceed 5%, once raises beyond the one in February occur. It now hovers between 4.25% and 4.5%.

Thomas Barkin, head of the Richmond Fed, last week suggested that a small rise was warranted. James Bullard of the St. Louis Fed and Raphael Bostic, from Atlanta, also indicated last week that policymakers should move at a more measured pace.

Norges Bank Investment Management, which manages Norway’s $1.3 trillion Government Pension Fund Global, has established a climate advisory board to help guide the sovereign wealth fund in its approach to managing climate-related financial risks and opportunities.

The Climate Advisory Board, which has been set up under the pension fund’s climate action plan, is intended to challenge and support the pension fund toward its goal of having its portfolio companies align their activities with the Paris Agreement and reach net-zero carbon emissions by 2050.

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“We will explore how we can get a better understanding and report on the results of our engagement and voting activities, including, as data and methods allow, outcomes such as reduced corporate emissions,” the Norges Bank climate action plan states.

The same plan lays out that, by 2025, it will have more information on whether the pension fund is on a “plausible trajectory” toward net zero in 2050 and will update its action plan with goals for the following five-year period up to 2030. “In this way, we will support the fund’s financial interests, maintain leadership in this fast-moving field, and continue working toward net zero emissions with our portfolio companies.”

The board includes Jody Freeman, Jennifer Morris, Huw van Steenis and Bjørn Otto Sverdrup as external members to the board. Freeman is a professor of law at Harvard Law School and an independent director on the board of directors of ConocoPhillips. Morris is the CEO of The Nature Conservancy, a conservation organization. Van Steenis is a vice chair at management consulting firm Oliver Wyman and was previously chair of UBS’ sustainable finance committee. Sverdrup is the chair of the executive committee for the Oil and Gas Climate Initiative, an oil and gas industry consortium.

“They will provide a wide breath of relevant climate expertise spanning academia, civil society, sustainable finance and business,” Carine Smith Ihenacho, Norges Bank Investment Management’s chief governance and compliance officer, said in a statement. “We are confident they will help us maintain leadership in managing climate-related risks as an owner of companies through the climate transition.”

The pension giant’s climate action plan, which it published in September 2022, outlines how it will manage climate risks and opportunities while aiming for its net-zero goals.

“These actions are targeted at improving market standards, increasing portfolio resilience, and effectively engaging with our portfolio companies,” it’s the climate action plan says. “At the heart of our efforts is driving portfolio companies to net zero emissions by 2050 through credible targets and transition plans for reducing their scope 1, scope 2 and material scope 3 emissions.”

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