The Fed raised rates by 0.25% and gave a “weak” signal about the potential end of the cycle



The Fed raised rates by 0.25% and gave a

On Wednesday, the Federal Reserve approved its tenth rate hike and hinted at a possible end to the current cycle of monetary tightening.

As part of the unanimous decision, which was widely expected in the markets, the US Federal Open Market Committee (FOMC) raised its key rate by 0.25 percentage points. The rate determines how much banks can charge each other for short-term loans, but it also affects many consumer loan products such as mortgages, auto loans and credit cards.

The hike brought the Fed’s interest rate to a target range of 5% to 5.25%, the highest since August 2007.

However, the markets are more focused on which direction the Federal Reserve will move next, especially in light of concerns about economic growth and the ongoing banking crisis, which is of extreme concern on Wall Street.

The statement released after the meeting gave only partial clarity, and not in its content, but in what was omitted from it. The document lacks the sentence found in the previous statement that “the Committee anticipates that further policy tightening may be required to achieve its 2% inflation target.”

In addition, the statement changed the wording to indicate the conditions under which “an additional tightening of policy may be appropriate.” Previously, the Federal Open Market Committee formulated the outlook depending on “the extent to which targets will increase in the future.”

The statement reiterates that the Federal Reserve “will take into account the cumulative tightening of monetary policy, the temporary delays in which monetary policy affects economic activity and inflation, and economic and financial development.”

Overall, these moves are at least a tentative hint that while tight policies may remain in place, the way forward is becoming less clear on actual interest rate hikes as policymakers assess incoming data and financial conditions.

The decision comes amid a fragile US economy and protests from senior Democratic lawmakers who have pushed for the Federal Reserve to stop raising interest rates, which they say could cause a recession and excessive job losses.

However, the labor market has remained strong since the increases began in March 2022. At the same time, inflation is still well above the target of 2%, which politicians consider optimal. Several officials said interest rates should probably remain high even if the hike cycle is suspended.

In addition to inflation, the Federal Reserve had to contend with a banking industry turmoil that resulted in the closure of three medium-sized banks.

While US central bank officials insist that the industry is generally stable, the expected tightening of credit conditions and increased regulation in the future could put additional pressure on economic growth, which was only 1.1% per annum in the first quarter.

A statement released after the meeting noted that “tighter credit conditions for households and businesses are likely to put pressure on economic activity, hiring and inflation.” This wording was similar to the March statement that followed the collapse of Silicon Valley Bank and Signature Bank.

The Federal Reserve’s own economists warned at the FOMC meeting in March that a slight recession was likely due to problems in the banking sector.

A statement this week confirmed that economic growth has been “modest” while “employment gains have been strong” and inflation “high”.

While the rate hike has exacerbated banking problems, Federal Reserve Bank officials insist they are solely focused on inflation. Recent data points to softening inflation, but “robust” indicators such as housing and medical costs remain high, while commodity prices have actually slowed, according to the Atlanta Fed’s calculations.

Markets expect slower growth and a possible recession to force the Federal Reserve Bank to cut rates later this year.

According to the data Supply Management Institute, production has been declining for six consecutive months. However, the service sector, which spans the wider $26.5 trillion US economy, points to expansion.

The labor market also remains stable. ADP reported on Wednesday that hiring by private companies rose by 296,000 in April, well above economists’ expectations. This could serve as a potential signal that despite the Fed’s best efforts to reduce employment and correct supply and demand imbalances, problems remain.

Be the first to read breaking news on OopsTop.com. For today’s latest news, and live news updates read the most reliable English news website Oopstop.com

Leave a Reply