US Federal Reserve Increases Rates by 25 BPS, Markets Hope for a Pause Going forward

The US Federal Reserve announced a 25 bps increase in benchmark interest rates matching market expectations. While some held hopes for a pause this week, prognosticators are now looking forward to the next meeting in June.

What did change in the Federal Open Market Committee (FOMC) announcement was language the tempered its past hawkish statements.

The FOMC stated:

“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 percent 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.”

And:

“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

Following the announcement, markets have wobbled. Meanwhile, many believe a pause is a good bet for June.

At the same time, inflation is receding but stubbornly persistent, and employment remains strong. During the press meeting after the rate increase was announced, Fed Chairman Jay Powell predicted a slowing economy and rising employment in the future as inflation slowly declines.

Part of the challenge with the Fed’s mandate is the fiscal side of the equation. While monetary policy is relatively straightforward, government spending has risen dramatically in recent years, in effect fighting the Fed and stimulating the economy. The recently approved Inflation Reduction Act is actually more of a spending bill costing taxpayers $1.2 trillion over time. At the same time, some COVID expenditures are still working their way through the economy.

 

 


Register Now
Sponsored Links by DQ Promote

 

 

Send this to a friend