WASHINGTON—The Federal Reserve Board voted unanimously today to raise interest rates by 25 basis points, citing its commitment to stem inflation. But one CU economist said it appears the Fed may be ready to pause such increases.
The increase marks the tenth hike since the Fed began taking steps to fight inflation early last year.
In a statement the Federal Reserve shared its belief that the U.S. banking system is “sound and resilient,” and can withstand another rate increase.
And the Fed emphasized there is still work to do to fight inflation.
“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 Fed said.
The Committee added that it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run.
“In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5 to 5.25%,” 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. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2% objective.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook,” the Fed continued. “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. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
Future Hikes?
NAFCU suggested the Fed's statement opens the door for discussions on ending the rate increases.
“The FOMC tweaked the language in their statement, omitting previous text that signaled further rate hikes," said NAFCU Chief Economist Curt Long. "The Committee left themselves room to change course, but for now it appears that the Committee’s preference is to leave rates at their present level until there is meaningful progress on the inflation front.”
CUNA: Policymakers Seem 'Inclined to Pause'
"The Federal Reserve, as expected, raised its benchmark Federal Funds interest rate by 25 basis points at its Wednesday meeting – pushing the overnight rate above 5% for the first time in over 15 years," said CUNA Chief Economist Mike Schenk. "The move represents the tenth consecutive increase since March 2022 – but the Federal Reserve Open Market Committee’s narrative suggests policymakers are inclined to pause on any additional increases hikes in the near future.
“Inflation (by almost every measure) is headed down and the declines have been fairly steady over the past nine months. While inflation remains well above the Fed’s 2.0% target, the combination of a modestly weaker labor market recently, the lag effects of monetary policy changes, and a substantially weaker banking sector -- with much tighter underwriting standards -- should more obviously push price changes toward the Fed’s goal.
“Consumers are likely to more obviously feel the pinch of these changes in the coming months. The Fed’s own estimates suggest that close to 1.5 million workers will be jobless when all is said and done.
“The challenges which many more average Americans are likely to face suggest the time to act is now: Starting or adding to a rainy-day fund and reaching out to have meaningful conversations with trusted advisors such as professionals in the nations not-for-profit, member-owned credit unions can go a long way in improving financial well-being by building reliance.”