WASHINGTON: The Federal Reserve proceed with its management of the post-pandemic economic recovery into the new phase with what might be the last in the historical series of interest rate hikes. It heightened attention to credit and other financial risks.
As expected by financial markets, the United States central bank raised its benchmark interest rate by a quarter of the percentage point to the 5.00%-5.25% range. However, it dropped from its policy statement language, saying that it “anticipates” further rate rises would be needed.
The change doesn’t stop Fed’s policy-setting panel from hiking rates again when it meets in June.
Still, Fed Chair Jerome Powell said it was now an open question whether further increases would be warranted in the economy, still facing high inflation but showing signs of a slowdown and with risks of a brutal credit crackdown by banks on the horizon.
“We are closer, or maybe even there,” Powell said of the end-point of rate rises that boosted the Fed’s policy rate by a total of five percentage points in the ten meetings since March 2022, the torrid pace for the central bank; one that may now warrant allowing some time for the effect to be felt in full.
Language using reminiscent of when it halted its tightening cycle in 2006, the Fed said “in determining the expanse to which additional policy firming may be appropriate,” officials would consider how the effect of monetary policy accumulating in the economy.
Fed officials feel higher interest rates
Top of mind, inflation and the impact of the credit tightening Fed officials feel is still developing in the wake of both higher interest rates and the financial sector rattled by the recent failure of three United States banks.
At a press conference following the statement’s release, Powell said that inflation remains the chief concern and that it’s too soon to say with certainty that the rate-hike cycle is over. He said, “We’re prepared to do more”, with policy decisions from June onwards to be made on a “meeting-by-meeting” basis.
He pushed back on market expectations the policy-setting Federal Open Market Committee would cut rates recent year, saying such a move was unlikely.
“We’ve on the committee a view that inflation is going to come down not so fastly; it’ll take some time,” he told reporters, and “in that globe, if that forecast is broadly right, it wouldn’t be appropriate to cut rates” this year.
