The US Federal Reserve raised rates again, but hinted at a possible pause
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The US Federal Reserve raised interest rates by a quarter of a percentage point – Fed Chairman Jerome Powell hinted that this could be the last increase before a pause.
It is reported Bloomberg citing Powell’s press conference and statement from the Federal Open Market Committee (FOMC).
The rate hike lifted the Fed’s benchmark rate to a target range of 5% to 5.25%, the highest level since 2007, up from near zero at the start of last year. The vote was unanimous.
“The committee will closely monitor incoming information and assess the implications for monetary policy,” the FOMC said in a statement. Gone from the statement in March was the line that the committee “expects that some additional tightening of monetary policy may be appropriate.”
Instead, the committee will now take into account various factors “in determining the extent to which additional policy strengthening may be appropriate.” According to Pavel, “this is a significant change – we no longer say what we expect.”
“So, we will be guided by the incoming data, meeting by meeting, and we will approach this issue at the June meeting,” he added.
Whether that rate will be high enough to bring inflation back to the Fed’s 2% target will be a “continuing assessment” based on new data.
As for the banking industry, which has seen several high-profile bankruptcies in the past two months, Powell said conditions have “broadly improved” since early March. At the same time, tensions in the sector lead to tighter credit conditions for households and businesses. This is likely to affect economic activity, employment and inflation, but the extent of the effects remains unclear.
A sharp tightening of monetary policy over the past year aimed at curbing the highest inflation rates in decades has also put pressure on banks, leading to the biggest bank failures since 2008.
Powell also said that the US could survive a moderate recession, but “the case of avoiding a recession, in my opinion, is more likely than the case of a recession.”
According to the US Department of Labor, the number of vacancies decreased and the number of layoffs increased in March – the labor market is only now starting to feel the effects of tightening monetary policy.
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