NEW YORK (Reuters) – The Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point and signaled it may pause further increases, giving officials time to assess bank failures, how the Washington standoff over the U.S. debt ceiling plays out, the course of inflation.
The U.S. central bank lifted it’s benchmark overnight interest rate to the 5.00%-5.25% range, it’s tenth consecutive increase since March 2022, and dropped language in it’s policy statement saying the Federal Open Market Committee still “anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time,” replacing it with a more qualified statement.
STORY:
MARKET REACTION:
STOCKS: The S&P 500 added to gains and was 0.41% higher
BONDS: Benchmark 10-year note yields ticked lower then higher to 3.3956% after the decision; The 2-year note yield slipped to 3.935%
FOREX: The euro extended a slight gain and was last up 0.57% at $1.1062
COMMENTS:
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“When having to choose between hawk and dove, the FOMC opted for chicken instead. There isn’t a credit crunch, but there are credit cracks. Manufacturing and housing have been in a recession already. Services is set to slow. This move is consistent with our “slow-flation” theme where we think we will see sub-par growth and inflation only gradually returning to 2%. Gradual is good enough when it comes to inflation. A pause, however, isn’t good enough though to avert at least a mild recession.”
MICHELE RANERI, HEAD OF U.S. RESEARCH AND CONSULTING, TRANSUNION
“This latest increase is an indicator that while inflation has slowed and the economy has cooled generally, the Fed believes we have not quite reached the point where interest rate hikes can be halted entirely. From a consumer credit perspective, the impact of further rate hikes will likely continue to be felt by borrowers across a range of industries. Some examples include consumers who are looking to buy a car, or perhaps those seeking to purchase a home, or refinance one they already own. For as long as interest rates remain relatively high, consumers are advised to continue to be diligent in keeping their own individual credit profiles in the strongest financial positions they can be. This includes continuing to pay down as much high-interest debt as they are able to, ensuring they have an ability to pay for any new debt acquired, and continuing to maintain a consistent record of on-time bill paying overall.”
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, NEW YORK.
“For me the key was a change of a single word, saying that they believe that they will be determining whether future raises are necessary, whereas last time they said that they are anticipating that further rate hikes will be necessary.”
“With the word ‘determining’ in place of ‘anticipating’ is essentially telling the markets that the Fed is now on pause.”
(Compiled by the Global Finance & Markets Breaking News team)
