On Wednesday, the Federal Reserve raised its key short-term interest rate by a quarter of a percentage point to the 5%-5.25% range, as expected by financial markets.
But in doing so, the central bank dropped from its policy statement language saying that it “anticipates” further rate increases would be needed.
The change doesn’t guarantee that the central bank’s policy-setting committee won’t hike rates again when it meets in June, but Jerome Powell said it was now an open question whether further increases will be warranted in an economy still facing high inflation, but also showing signs of a slowdown and with risks of a tough credit crackdown by banks on the horizon.
Using language reminiscent of when it halted its tightening cycle in 2006, the Fed said that “in determining the extent to which additional policy firming may be appropriate,” officials would take into account how the impact of monetary policy was accumulating in the economy.
At a press conference following the release of the statement, Powell said inflation remains the chief concern, and that it is therefore too soon to say with certainty that the rate-hike cycle is over.
“We are prepared to do more” he said, with policy decisions from June onward to be made on a “meeting-by-meeting” basis.
The bank started raising interest rates aggressively last year, when prices in the U.S. were soaring at the fastest pace in decades.
Higher interest rates make it more expensive to buy a home, borrow to expand a business, take on other debt, etc. By increasing those costs, demand is expected to fall and prices to cool off.
We will continue to report on news related to the central bank’s policy-setting committee and interest rate hikes.
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