US Fed Hits the Pause Button

The US Federal Reserve has finally hit the pause button on raising interest rates on one of the most aggressive tightening cycles since the financial crises, but it’s not over, not by a long shot.

Policymakers have kept the interest rates unchanged after ten consecutive increases, keeping the Federal target rate between 5% and 5.25%, but signalled that more hikes are coming. The FOMC has pencilled in two additional 25 basis point rate hikes this year, starting in July, which would increase the Federal Funds rate by 50 basis points this year.

In Fed Chair Jerome Powell’s press conference after the decision, the hawkish statements continued, with Powell emphasising that the committee passed on rising rates to allow for more data to come through. As the Fed gets closer to a terminal rate, Powel stated, “We’ve covered a lot of ground, and the full effects of our tightening have yet to be felt,”. With this being said, policymakers are focusing on credit conditions and commercial real estate, which is expected to feel more pressure.

Powell also emphasised bringing down inflation which has been stubbornly high due to a surprisingly resilient labour market. The FOMC also lifted its economic growth outlook but is now looking for unemployment to rise to 4.5% over the next year and said a soft landing for the economy is still possible. The benchmark S&P 500 Index and US Treasuries fluctuated throughout the announcement and press conference but ended flat on the day.

Sources: Bloomberg, Reuters, FedWatch Tool, US Federal Reserve Board.

Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.