As was widely forecast by markets, Fed Chair Jerome Powell finally paused the central bank’s aggressive rate hiking cycle, leaving the Feds fund target rate unchanged at 5.25%.
The move comes after Tuesday’s CPI print showed consumer prices rose by an annualized 4% in May, substantially below the 4.9% forecast by economists.
The Fed acknowledged that inflation remains elevated, thanks to continued strength in the US banking system, robust job gains, and a low unemployment rate. However, at the same time, policy makers argued that a pause was warranted into order to assess incoming data, which currently poses unknown implications on economic activity.
“In determining the extent of additional policy firming that may be appropriate
to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” reads the Fed’s statement.
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Should inflation continue to create headwinds though, “the Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.” The FOMC’s infamous dot plot suggests members are pricing in a further 50 basis points-worth of rate hikes before the end of the year, ultimately bringing interest rates to around 5.6%— substantially higher than markets have been projecting.
Nine of the 18 FOMC members are in favour of at least two more rate increases, while three are deeming even more hikes than that will be necessary. Policy makers also upwardly revised their projections for both economic growth and inflation, and have abandoned any notion of a potential recession in 2023.
Information for this briefing was found via The Federal Reserve and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
