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.
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