The Federal Reserve raised interest rates for a 10th consecutive time on Wednesday, but this might be the last rate hike of the cycle. A change in the central bank’s policy statement suggested that it could at long last pause its tightening campaign at the next Fed meeting.
The central bank’s rate-setting group, known as the Federal Open Market Committee (FOMC), wrapped up its regularly scheduled two-day meeting by increasing the short-term federal funds rate by 25 basis points, or 0.25%, to a target range of 5.0%-5.25%.
“The Fed delivered the 25 basis point hike we were expecting. The disinflation progress hasn’t been nearly as fast as they’ve hoped with the continued strength in the labor market and persistent PCE inflation data, so the latest increase doesn’t come as much of a surprise despite the recent bout of banking turmoil from First Republic. While there is a chance of a pause in June due to the tighter credit conditions, the Fed will be prepared to raise again if they are not satisfied with the progress prices have made. Between the combination of higher rates, tighter credit conditions, and softening economic data it could be expected that growth will drag as a result. Markets will most likely remain volatile as they try to digest all of these catalysts (rate hikes, stubborn inflation, banking turmoil) in addition to the upcoming debt ceiling deadline.” – Clayton Allison, portfolio manager at Prime Capital Investment Advisors.
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