[ad_1]
In a widely expected move, the Federal Reserve raised its benchmark borrowing rate by 0.25 percentage point, marking its 10th interest rate increase in just over a year. The Fed’s decision takes the Fed funds rate to a target range of 5%-5.25%, the highest since August 2007.
During Wednesday’s press conference, Chairman Jerome Powell said, “A decision on a pause was not made today” but added that the change in the statement language around future policy firming was “meaningful,” CNN reported. This statement comes amid concerns over economic growth and a bank crisis that has rattled nerves on Wall Street.
The central bank’s decision considers the overall impact of previous monetary policy tightening, the time delay in its effect on economic activity and inflation, as well as economic and financial developments. This suggests that while a tight policy stance may persist, the path forward for actual interest rate hikes is uncertain as policymakers monitor incoming data and financial conditions.
The Fed has had to deal with tumult in the banking industry that has seen three mid-size banks shuttered. Though central bank officials insist the industry as a whole is stable, an expected tightening in credit conditions and heightened regulations ahead are expected to weigh further on economic growth that was just 1.1% annualized in the first quarter.
While higher rates have compounded the banking problems, Fed officials insist they are focused squarely on inflation. Recent data points have indicated a softening in price increases, though “sticky” items such as housing costs and medical care have remained higher. Markets are anticipating that slower growth and the possibility of recession will force the Fed to cut rates later this year.
Manufacturing has been in a contraction for the past six months, according to an Institute for Supply Management gauge. However, the services sector, which entails a broader slice of the $26.5 trillion U.S. economy, has been pointing to expansion. The labor market also has remained resilient.
According to a report by CNBC, Payroll processing firm ADP reported Wednesday that hiring by private sector companies increased by 296,000 in April, well ahead of economists’ expectations. That served as a potential signal that for all the Fed’s efforts to cool the jobs picture and correct a supply-demand imbalance, issues remain.
[ad_2]
Source link