Fed Raises U.S. Rates By 25 Basis Points, Signalling Possible Pause
While the decision for a rate hike pause wasn't considered in this meeting, it may be considered at the next one, Powell said.
The U.S. Federal Reserve raised key interest rates by 25 basis points, hinting that a pause may be on the cards in the next meeting.
Even as banking turmoil led to mounting pressure from lawmakers to pause, the Federal Open Market Committee delivered a quarter point hike taking the federal fund rates in the range of 5% to 5.25%, the highest since 2007.
The committee unanimously voted to increase the rates despite concerns of deepening financial market turmoil leading to failure of Signature Bank, Silicon Valley Bank and First Republic Bank.
"The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks," the Federal Reserve said in a statement.
While inflation rate continues to be way over the central bank's target of 2%, some indicators coupled with tighter credit conditions—such as consumer spending and services inflation—are hinting towards a price relief in the upcoming months.
Reiterating its commitment to the 2% inflation goal, the Federal Reserve said, "The Committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."
This is a change in language from “some additional policy firming” may be required, until the last FOMC meeting in March.
Calling it a "meaningful change" in language, Jerome Powell, chairman of the Federal Reserve said that while the decision for a rate hike pause wasn't considered in this meeting, it may be considered at the next one in June.
Dismissing concerns of a recession this year, Powell also forecasted modest economic growth for the U.S.
Several lawmakers, including Senators Bernie Sanders and Elizabeth Warren, had urged Powell to pause rates in this meeting, according to Bloomberg.
Watch Independent Emerging Markets Commentator Geoffrey Dennis's take on Fed's decision and impact on Indian markets: