WASHINGTON (Reuters) – The U.S. Federal Reserve on Wednesday moved to a new stage in managing the post-pandemic economic recovery in what could be the last in a historic string of rate hikes. , increased attention to credit and other economic risks. .
The US central bank has raised the benchmark overnight rate by a quarter of a percentage point to a range of 5.00% to 5.25%, in line with expectations of financial markets, but in doing so, it has been “anticipating” further interest rates. Downgraded from policy statement language. You will need an increase.
The change won’t prevent the Fed’s policy-making committee from raising rates again in June, but Fed Chairman Jerome Powell said further hikes were justified in an economy still facing high inflation. It also showed signs of a slowdown and loomed risk of a severe credit crackdown by banks.
“We are close, or we may be close,” said Powell on the Fed’s 5% rate hike end point at its 10th meeting since March 2022. And it can take a while before the full impact is felt.
Using language reminiscent of when it halted the tightening cycle in 2006, the Fed said that “in determining the extent to which additional policy tightening might be appropriate,” officials He said it would take into account how the effects are accumulating in the economy.
Most importantly: The effects of inflation and credit tightening are being felt by Fed officials and are still evolving in the wake of higher interest rates and financial sector turmoil following the recent collapse of three US banks. increase.
In a press conference following the announcement, Powell said inflation remained the main concern and therefore it was too early to say for certain that the rate hike cycle was over.
“We are ready to do more,” he said, adding that policy decisions from June onwards will be made “on a conference-by-meeting basis.”
He also countered market expectations that the Federal Open Market Committee (FOMC), the policy-making body, would cut interest rates later this year, saying such a move was unlikely.
“We, the members of the Commission, are of the view that the inflation rate is not going to fall so quickly, and it will take some time,” he told reporters.
‘soft landing’
But Powell agreed that “policy is tightening,” and that the central Banks may have worked hard enough on interest rates, he said.The rest of the Fed hopes it can avoid a recession.
The Fed’s policy rate is now about the same as it was on the eve of the precarious financial crisis 16 years ago, and the central bank’s 2% target for inflation is what a majority of Fed officials actually expected in March. Inflation is now more than double the target.
Although economic growth remains modest, “recent developments are likely to tighten credit terms for households and businesses, weighing on economic activity, employment and inflation,” the Fed said in a statement.
But the Fed said job gains were “remaining solid,” and Mr. Powell said recent data on declining employment and declining earnings growth, combined with historically low unemployment, meant the He noted that it supports the idea that the economy could slow down without rising dramatically.
“I think the case of avoiding a recession is more likely than the case of going into one,” Powell said.
The risks surrounding a U.S. debt limit confrontation between Republicans in Congress and Democratic President Joe Biden have raised alarm over any further tightening of the fiscal situation.
The change in the Federal Reserve’s approach was reflected in US interest rate futures, which signaled widespread expectations that neither of the central bank’s next two policy meetings would raise rates.
US stocks held their initial gains after the Federal Reserve’s statement was released, but fell later in the afternoon and closed lower. Yields on US Treasury bills fell sharply and the dollar fell against a basket of trading partner currencies.
“For me, the key change was one word that I believe we are determining whether future rate hikes are necessary,” Sam Stovall said. Chief Investment Strategist at CFRA Research: “By using the word ‘determine’ instead of ‘anticipate,'[it]basically tells the market that the Fed is currently on hold.” ing.
Reported by Howard Schneider.Editing by Paul Simao
Our criteria: Thomson Reuters Trust Principles.
