by Howard Schneider and Ann Saphir
WASHINGTON (Reuters) – The U.S. Federal Reserve (Fed) said on Wednesday after its two-day monetary policy meeting that it was raising its main interest rate by 25 basis points, as expected, and opened the way for a possible pause in its rate hike campaign.
This decision, taken unanimously, comes in a context of tremors in the banking sector and while the threat of a default on the debt of the United States hovers, no agreement having for the moment been reached in Congress. on an increase in the debt ceiling.
The federal funds rate target (“fed funds”) is raised between 5% and 5.25%, which was anticipated by a large majority of economists and analysts polled by Reuters before the meeting of the Federal Open Market Committee (FOMC). ), the Fed’s monetary policy committee.
This is the tenth consecutive hike in the U.S. central bank’s key interest rate since March 2022.
However, in the press release accompanying its decision, there is no longer the passage in which the FOMC says it anticipates that “further tightening of monetary policy may be appropriate” in order to achieve the inflation target of 2%.
Instead, the Fed preferred language reminiscent of the language it used when it paused monetary tightening in 2006.
The statement said Fed officials will review developments in the economy, inflation and financial markets in the coming weeks or months to “determine how much additional tightening might be appropriate.” .
NOTHING DECIDED FOR JUNE, SAYS POWELL
This does not guarantee that the US central bank will not change its rates at its next meeting in June, especially since it noted that “inflation remains high” and that job creation was still progressing at ” a robust rhythm”.
Speaking after the release of the statement, the Fed chief said the Fed considered inflation was still too high and inflationary pressures remained a concern for the central bank.
Recalling that he still aims to control inflation, Jerome Powell added that it was premature to say that the rate hike campaign was over.
“We are ready to do more if necessary” in terms of raising rates, he said at a press conference, indicating that Fed officials had not decided at their meeting to operate the next month a pause in this cycle of monetary tightening.
Decisions will be made “meeting after meeting” based on the data, insisted Jerome Powell.
However, he also said that monetary policy was now at a threshold close to where a pause might be needed.
“If you take into account all of the tightening that’s been happening through different channels, we feel like we’re getting closer, or even already there,” Jerome Powell said, adding that it’s possible the Fed had some. done enough with the rates.
THE LIKELY HYPOTHESIS OF A RATE CUT
Anticipated by some market players, a rate cut in the second half is unlikely, said the head of the US central bank.
“We think inflation is not going to come down any time soon” and, if that assumption were to be confirmed, “it won’t be appropriate to cut rates” this year, Jerome Powell said.
The Fed’s key rate is at a level similar to that it reached in 2007 before the financial crisis, and at a level judged in March by a group of central bank officials as adequate to bring the inflation at the 2% target. Inflation currently remains more than twice this target.
Between the risks linked to the bankruptcy of several American regional banks and the deadlock in Congress on raising the debt ceiling, the Fed’s caution has been reinforced regarding a further tightening of financial conditions.
After the press release was published, the main Wall Street indices held on to slight gains before falling into the red following Jerome Powell’s press conference. The dollar retreated while Treasury yields sharply accentuated their losses.
“The key is in the replacement of a single word,” commented Sam Stovall, a strategist at CFRA Research in New York, referring to the passage in the Fed statement indicating that its officials will determine whether further hikes are necessary, and nor do they anticipate that it will.
“With the word ‘determine’ instead of ‘anticipate’, (the Fed) is basically telling the markets that it is now on hiatus.”
(Report Howard Schneider, Ann Saphir and Michael S. Derby; Laetitia Volga and Jean Terzian)
Copyright © 2023 Thomson Reuters
I have over 8 years of experience working in the news industry. I have worked as a reporter, editor, and now managing editor at 247 News Agency. I am responsible for the day-to-day operations of the news website and overseeing all of the content that is published. I also write a column for the website, covering mostly market news.
