The Federal Reserve implemented a quarter-point interest rate hike, increasing the overnight rate to 5.00%-5.25%, marking the tenth consecutive rise since March 2022.
The central bank also hinted at potentially pausing future rate increases, allowing time for officials to evaluate the impact of recent bank failures, the ongoing political deadlock over the US debt ceiling, and inflation trends.
The unanimous decision did not include the previous statement that the Federal Open Market Committee may continue to tighten policy to bring inflation back to 2% over time. Instead, the Fed used more cautious language, similar to that used in 2006 when rate hikes were paused, stating that officials would monitor the economy, inflation, and financial markets before determining whether further policy tightening is necessary.
While the updated language does not ensure a pause in rate hikes at the June policy meeting, the Fed acknowledged that inflation remains high and job growth continues at a strong pace. The current policy rate is similar to before the destabilizing financial crisis sixteen years ago. Most Fed officials in March believed it would be adequate to bring inflation back to target. However, inflation is currently more than double that target.
The Federal Reserve noted that recent events may lead to tighter credit conditions for households and businesses, negatively affecting economic activity, employment, and inflation. However, the recent failures of several US banks and the standoff between Republicans in Congress and Democratic President Joe Biden over the debt ceiling contribute to the Fed’s hesitancy to further tighten financial conditions.
Fed Chair Jerome Powell will hold a press conference at 2:30 pm EDT (1830 GMT) to provide more details on the outcomes of the latest two-day policy meeting.
