FOMC meeting Today

FOMC meeting LIVE May 2023: Fed hikes interest rates by 25 basis points, hints at pause in a tightening cycle

The Federal Reserve's Federal Open Market Committee (FOMC), led by Chairman Jerome Powell, announced a 25 basis point hike in interest rates, as widely expected. The FOMC signaled a possible pause in future rate increases, amid concerns of red-hot inflation and economic growth. 

FOMC hikes interest rates as expected

Economists widely expected the FOMC to decide on a 25 basis point increase in the Fed funds range, which is the benchmark US interest rate, and that's exactly what happened. This unanimous decision takes the fed funds rate to a target range of 5% to 5.25%, the highest since August 2007.

 Central banks struggling with inflation and economic growth

The FOMC policy meeting comes at a time when central banks around the world are struggling to balance red-hot inflation with economic growth, amid fears of recession, and the US government is looking at a fast-approaching debt ceiling.

Chair Powell's comments on the latest rate hike

Chair Powell’s market-moving comments after the latest rate hike includes:

- The FOMC thinks it will take time for inflation to come down

- It would not be appropriate to cut rates

Fed drops a tentative hint that the current tightening cycle is at an end

The Federal Reserve approved its 10th interest rate increase in just a little over a year and dropped a tentative hint that the current tightening cycle is at an end. This widely expected decision takes the fed funds rate to a target range of 5%-5.25% and was unanimous.

FOMC notes "tighter" credit for households

The post-meeting statement noted that "tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation." The language was similar to the March statement, which came just after the collapse of Silicon Valley Bank and Signature Bank.

Tougher lending standards to slow the economy

The Fed also noted that stricter lending standards are likely to slow the economy, which could help the central bank achieve its targeted inflation goal.

Possible pause in rate hikes

The Fed’s post-meeting statement did not include a notation that “some additional policy firming may be appropriate,” which was included in its prior release. That omission leaves open the possibility for an upcoming pause in rate hikes. Fed Chair Jerome Powell said at his post-meeting press conference that the central bank would “approach that question at the June meeting.”

Conclusion

The Federal Reserve's 25 basis point hike in interest rates takes the Fed funds rate to a target range of 5% to 5.25%, the highest since August 2007. With central banks worldwide struggling to balance red-hot inflation with economic growth, investors are looking for any signs of stress in the financial sector amid fears of recession. The Fed's commitment to bringing down inflation may lead to a pause in rate hikes.