The US Federal Reserve on Wednesday raised the monetary policy rate by a quarter of a percentage point and signaled that it may pause the hikes

2023-05-04 01:34:13

The U.S. Federal Reserve (Fed) raised its policy rate by a quarter of a percentage point on Wednesday and signaled it may hold off on further hikes, giving officials time to assess the fallout from recent regional bank failures as they wait for the impasse to be resolved. political related to the increase in the US debt ceiling and monitors the evolution of inflation, reports Reuters.

The President of the Federal Reserve, Jerome PowellPhoto: Jess Rapfogel/AP/Profimedia

During Wednesday’s press conference, President Jerome Powell said that “a decision on taking a break was not made today”, but he said that the change in the language of the statement regarding the future strengthening of the policy is “significant”, cites News.ro

The Fed’s unanimous decision lifted the US central bank’s benchmark overnight interest rate to a range of 5.00%-5.25%, marking the Fed’s tenth consecutive rate hike since March 2022.

But the central bank’s policy statement dropped language that said the Federal Open Market “still anticipates that some additional policy tightening may be appropriate to arrive at a monetary policy stance that is sufficiently restrictive to bring back inflation at 2%, over time.”

In place of that language, the Fed inserted a more qualified statement, reminiscent of the language it used when it halted interest rate hikes in 2006, saying that “in order to determine the extent to which further policy tightening may be appropriate,” officials will study how the economy, inflation and financial markets behave in the coming weeks and months.

The new language does not guarantee that the Fed will hold interest rates steady at its next policy meeting in June, and the statement noted that “inflation remains elevated” and job gains are still “at a robust pace.”

But the Fed’s policy rate is now about the same as it was on the eve of a destabilizing financial crisis 16 years ago, and is at a level that most Fed officials estimated in March would actually be “tight enough” to return to. over time at an inflation rate of 2%. Inflation is currently twice as high.

Economic growth remains modest, but “recent developments could result in tighter credit conditions for households and businesses and affect economic activity, employment and inflation,” the Fed said.

Risks related to the recent bankruptcies of several US banks and the political impasse over the debt ceiling between Republicans in Congress and Democratic President Joe Biden have increased the Fed’s caution about trying to further tighten financial conditions. (News.ro)