The Federal Reserve hiked interest rates by another quarter percentage point on Wednesday as the central bank continues efforts to tame inflation — and hopes to avoiding sparking a recession.
Investors on Wall Street hopeful that Wednesday’s 25-basis point rate hike, which brings the benchmark funds rate from 5% to 5.25%, marks the end of the Fed’s tightening of its monetary policy received some good news.
The central bank hinted that it was done hiking interest rates after raising them to a high not seen in 16 years.
In an overt shift, the central bank no longer says it “anticipates” further rates will be needed, only that it will watch incoming data to determine if more hikes “may be appropriate.”
The Fed governors cut from their previous policy statement in March indicating that more rate hikes might be needed.
They replaced that text with new language expressing their intent to monitor economic developments “in determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time.”
The new language does not guarantee the Fed will hold rates steady at its next policy meeting in June, and the statement noted that “inflation remains elevated,” and job gains are still “running at a robust pace.”
While inflation has slowed somewhat in recent months, it has not abated at the level that the central bank would like.
The Fed’s decision comes as higher interest rates have eaten into the country’s economic growth while analysts have grown nervous over instability has rocked the banking sector.
The US economy grew by an annual pace of just 1.1% from January through March.
Analysts blame the high interest rates that have cooled the housing market while forcing businesses to cut inventory.
Core personal consumption expenditure prices, which measure the changes in the price of goods that exclude food and energy, rose 4.9% in the first three months of the year, higher than the 4.7% consensus and up from the fourth quarter figure.
Despite the lower-than-expected production, consumer spending, which accounts for about 70% of US economic activity, remained resilient, growing at a 3.7% annual pace, the fastest quarterly pace in nearly two years, according to recent figures from the Commerce Department.
The slowdown reflects the impact of the Federal Reserve’s aggressive drive to tame inflation, with nine interest rate hikes over the past year.
The surge in borrowing costs is expected to send the economy into a recession sometime this year.
Though inflation has steadily eased from the four-decade high it reached last year, it remains far above the Fed’s 2% target.
The housing market, which is especially vulnerable to higher loan rates, has been battered.
And many banks have tightened their lending standards since the failure of three major US banks, making it even harder to borrow to buy a house or a car or to expand a business.
Regulators on Monday announced that First Republic Bank had been seized and then sold to JPMorgan Chase & Co.
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