The Federal Reserve moved its management of the post-pandemic economic recovery into a new phase with what may be the last in a historic series of interest rate hikes and heightened attention to credit and other economic risks
The U.S. central bank raised its benchmark overnight interest rate by a quarter of a percentage point to the 5.00%-5.25% range, as expected by financial markets, but in doing so dropped from its policy statement language saying that it "anticipates" further rate increases would be needed.
Using language reminiscent of when it halted its tightening cycle in 2006, the Fed said that "in determining the extent to which additional policy firming may be appropriate," officials would take into account how the impact of monetary policy was accumulating in the economy. "We are prepared to do more" he said, with policy decisions from June onward to be made on a "meeting-by-meeting" basis.
The Fed's policy rate is now roughly the same as it was on the eve of a destabilizing financial crisis 16 years ago, and is at the level which a majority of Fed officials projected in March would in fact be "sufficiently restrictive" to return inflation to the central bank's 2% target. Inflation is currently still more than twice that target.
Risks around a U.S. debt limit standoff between Republicans in Congress and Democratic President Joe Biden have added to the sense of caution about trying to tighten financial conditions further.
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