WASHINGTON: The Federal Reserve hiked interest rates by a quarter of a percentage point on Wednesday but indicated it was on the verge of pausing further hikes in borrowing costs amid recent turmoil in financial markets spurred by the collapse of two US banks.
The move pegged the US central bank’s benchmark overnight interest rate in the 4.75%-5.00% range, with updated projections showing 10 out of 18 Powered policy makers still expect rates to rise another quarter of a percentage point by the end of this year, the same endpoint seen in the December projections.
But in a key shift led by the sudden failures of Silicon Valley Bank (SVB) and Signature Bank this month, the latest Fed policy statement no longer says that “continued hikes” in rates are likely to be appropriate. That language had been in every policy statement since the March 16, 2022 decision to initiate the rate-hiking cycle.
Instead, the policy-making Federal Open Market Committee said only that “further policy tightening may be appropriate,” leaving open the possibility that an additional quarter-percentage point rate hike, perhaps at the next Fed meeting, they represent at least an initial stopping point for rate hikes.
While the policy statement said the US banking system was “healthy and resilient,” it also noted that recent stress in the banking sector “is likely to result in tighter credit conditions for households and businesses and weigh on economic activity,” on hiring and inflation.”
There were no disagreements on the political decision.
The document did not assume that the battle against inflation had been won. The new statement dropped the language that inflation “has eased” and replaced it with the statement that inflation “remains high.”
Job gains are “robust,” according to the Fed.
Officials had forecast the unemployment rate to end the year at 4.5%, slightly below the 4.6% seen in December, while the outlook for economic growth fell slightly to 0.4% from 0. 5% of previous projections. Inflation can now be seen to close the year at 3.3%, compared to 3.1% in the latest projections.
The outcome of this week’s two-day meeting marks an abrupt repositioning of central bank strategy from just two weeks ago, when the Fed chairman Jerome Powell testified to Congress that higher-than-expected inflation would likely force the central bank to raise interest rates higher and possibly faster than expected.
The March 10 collapse of California-based SVB and the subsequent collapse of New York-based Signature Bank highlighted broader concerns about the health of the banking sector and raised the possibility that further rate hikes by the Fed could plunge the economy towards a financial crisis.
Powell will hold a press conference at 2:30 PM EDT (1830 GMT) to elaborate on the Fed’s policy decision and views on recent events.
The move pegged the US central bank’s benchmark overnight interest rate in the 4.75%-5.00% range, with updated projections showing 10 out of 18 Powered policy makers still expect rates to rise another quarter of a percentage point by the end of this year, the same endpoint seen in the December projections.
But in a key shift led by the sudden failures of Silicon Valley Bank (SVB) and Signature Bank this month, the latest Fed policy statement no longer says that “continued hikes” in rates are likely to be appropriate. That language had been in every policy statement since the March 16, 2022 decision to initiate the rate-hiking cycle.
Instead, the policy-making Federal Open Market Committee said only that “further policy tightening may be appropriate,” leaving open the possibility that an additional quarter-percentage point rate hike, perhaps at the next Fed meeting, they represent at least an initial stopping point for rate hikes.
While the policy statement said the US banking system was “healthy and resilient,” it also noted that recent stress in the banking sector “is likely to result in tighter credit conditions for households and businesses and weigh on economic activity,” on hiring and inflation.”
There were no disagreements on the political decision.
The document did not assume that the battle against inflation had been won. The new statement dropped the language that inflation “has eased” and replaced it with the statement that inflation “remains high.”
Job gains are “robust,” according to the Fed.
Officials had forecast the unemployment rate to end the year at 4.5%, slightly below the 4.6% seen in December, while the outlook for economic growth fell slightly to 0.4% from 0. 5% of previous projections. Inflation can now be seen to close the year at 3.3%, compared to 3.1% in the latest projections.
The outcome of this week’s two-day meeting marks an abrupt repositioning of central bank strategy from just two weeks ago, when the Fed chairman Jerome Powell testified to Congress that higher-than-expected inflation would likely force the central bank to raise interest rates higher and possibly faster than expected.
The March 10 collapse of California-based SVB and the subsequent collapse of New York-based Signature Bank highlighted broader concerns about the health of the banking sector and raised the possibility that further rate hikes by the Fed could plunge the economy towards a financial crisis.
Powell will hold a press conference at 2:30 PM EDT (1830 GMT) to elaborate on the Fed’s policy decision and views on recent events.
