The Federal Reserve raised interest rates a quarter of a percentage point on Wednesday. -as expected- and noted that could pause to allow time to assess the consequences of the recent bank failures, wait for the resolution of a political standoff over the US debt limit and watch the course of inflation.
The unanimous decision raised the US central bank’s overnight benchmark interest rate to range of 5.00% to 5.25%, the highest level since 2007, and the Fed’s 10th consecutive hike since March 2022.
But the monetary policy statement accompanying the decision removed reference to the fact that the Federal Open Market Committee, which sets interest rates, still “anticipates that further tightening of monetary policy may be appropriate in order to achieve a tight enough monetary policy stance to bring inflation back to 2% over time.
Instead, the Fed inserted more nuanced text, reminiscent of language used when he halted rate hikes in 2006, and what says that “to determine the extent to which further tightening of monetary policy may be appropriate”officials will study how the economy, inflation and financial markets behave in the coming weeks and months.
the new tone does not guarantee that the Federal Reserve will keep rates stable at its next meeting in Juneand the statement states that “inflation remains high” and employment continues to “grow at a robust rate.”
However, the official interest rate of the Federal Reserve is practically the same as it was on the eve of the destabilizing financial crisis of 16 years ago, and it stands at the level that most of its members estimated in March would be “restrictive enough” for inflation to return to its target. Currently the price hike is still more than double the target.
Economic growth remains modest, but “It is likely that the latest events will result in a tightening of credit conditions for households and companies and will weigh on economic activity, hiring and inflation”the Fed said.
The risks surrounding the recent bankruptcies of several US banks and the debt limit showdown between Republicans in Congress and Democratic President Joe Biden have added to the sense of caution from the Fed in trying to further tighten financial conditions.
Source: Ambito
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