US Federal Reserve announces quarter-point interest rate hike, signals potential pause

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The United States Federal Reserve raised its interest rates by a quarter of a percentage point for a 10th consecutive time, on Wednesday (May 3), while indicating a pause in further increases. This comes amid recent bank failures as well as Congress’ ongoing deadlock over the debt ceiling issue. 

The central bank has been aggressively raising interest rates since March, last year, in a bid to control the US’ soaring inflation and pushed its benchmark overnight interest rate somewhere in the 5.00 per cent and 5.25 per cent range. In the statement, the Fed also said that it would “take into account” the impact of tighter monetary policy and “economic and financial developments” going forward.

During the press conference, Fed Chair Jerome Powell said that the central bank still views inflation as too high and that it remains concerned by high price pressures. However, it no longer “anticipates” further hikes and monitors the incoming data to make the decision if more hikes “may be appropriate.”

Therefore, Powell has said that it is too soon to say if the rate-hike cycle is over as the decisions made by officials are taking on a “meeting-by-meeting” basis, adding, “We are prepared to do more with rate rises if needed.” The decision about the recent hike came after the policy-setting Federal Open Market Committee’s (FOMC) recent meeting and was in line with the expectations of analysts and traders. 

Notably, the recent statement by the central bank marks a departure from the last rate announcement where policymakers had said that they expect “additional policy firming” to rein in inflation. While this time around, the Fed’s ease of guidance suggests that the economy is somewhat beginning to cool. 

“If you add up all the tightening that’s going on through various channels, we feel like we’re getting close or are maybe even there,” said Powell, as quoted by Reuters, about monetary policy. The Fed chair also pushed back on market expectations of rate cuts this year adding, “We on the committee have a view that inflation is going to come down not so quickly, it will take some time.” 

It is worth noting that the Fed’s policy rate, this time around, is somewhat close to where it was on the eve of the 2008 financial crisis. The rate hikes have more than doubled mortgage rates, elevated the costs of auto loans, credit card borrowing and business loans and heightened the risk of a recession, reported The Associated Press. 

(With inputs from agencies) 


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