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Fed hikes by 0.25%, signals possible June pause amid shift to data-dependent mode

Published 05/03/2023, 02:00 PM
Updated 05/03/2023, 02:55 PM
© Reuters.

Investing.com -- The Federal Reserve raised interest rates by 0.25% on Wednesday, and signalled a possible pause in June, though stressed that incoming data would reign supreme on monetary policy decisions.  

The Federal Open Market Committee, the FOMC, raised its benchmark rate to a range of 5% to 5.25% from 4.75% to 5% previously.

In its May policy statement, the FOMC said "the extent to which additional policy firming may be required" would "take into account the cumulative tightening of monetary policy," and other incoming data. That marked a shift away from its prior language in March when Fed members anticipated “some additional policy firming may be appropriate," suggesting that a pause on hikes is in play for June.

The tweak in policy language marked a "meaningful change," Fed Chairman Jerome Powell said Wednesday, [as] "we were no longer saying that we anticipate [some additional policy firming]."

In sign of a shift to a data-dependent stance, Powell said the future monetary policy decision "will be driven by the incoming data meeting by meeting."

The latest rate hike not only lifted the Fed’s benchmark rate to the peak level predicted in March, but also to the highest level in 16 years as the Fed wages war against elevated inflation.

While inflation has shown signs of cooling, many worry about the upside threat that a strong labor market poses for inflation, particularly core services ex-housing inflation, which makes up the bulk of price pressures.

The most recent reading on core PCE, which is the Fed's preferred inflation measure and excludes volatile components of food and energy, slowed to 4.6% in March. But that is still well above the Fed’s 2% target, with FOMC reiterated that "inflation remains elevated."

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The Fed, however, continued to warn that it will take time for its monetary policy measures to slow the economy, and bring down inflation.

The fastest pace of rate hikes seen in four decades appears now to be taking shape as pressures in parts of the economy including in regional banking and commercial real estate start to emerge.

Following the collapse of several regional banks including First Republic, many on Wall Street are looking out for further pressures in the sector that could trigger a sharp decline in lending activity and weigh on economic growth and inflation.

Goldman Sachs (NYSE:GS) said recently that tighter credit conditions are likely to slow growth in 2023 by about 0.4%, equivalent to the usual impact of 40bps of rate hikes. 

At its previous meeting in March, the Fed's staff acknowledged that the impact of the wobble in the banking sector could potentially drive the economy into a “mild recession” starting later this year.

Following the FOMC meeting and conclusion of Powell's press conference, markets continue to price in a pause in June.  

"Our base case remains intact for a pause here after this meeting, followed by a pause until rate cuts begin in Q1 2024. It will be very interesting to see how Fed officials adjust their 'dot plot' forecasts in June, Jefferies said in a note.

Latest comments

5 to 6 bank failure, recession, high inflation, more rate hike. slow economy. us may default. etcc... dow must jump 1000 point
That's a very balanced perspective.
It's normal for several US banks failures per year.
2 more banks failure coming on way
sh|Т hits the fan at turbo speed
sell Gold tgt 1938-1910
Don't worry, by tomorrow the markets will either forget or not believe the Fed and the markets will be green by the open
US recession in 3...2...1...
PGM producers are about to go on a roll. Gold all time highs. Silver pushing decade old highs.
Does AI use data? Asking for a friend.
fed decision was unanimous? policy by mass stupidity.
I agree the white house policy is mass stupidity
'signals possible June pause'. Lol.
Stop ty Steal
Buy physical gold and silver and thank me later.
data-dependent stance = we are very worried about the state of the banking system
inflation is more of a problem than the banks. We haven't even seen the real disaster yet.
Only the fevoiute coversre
bucks stop with nobody. sell in May go away.
close the door and come back in 2024
😂🤣
Let Repigs Waller
sell in may
Future Data could also mean a more aggressive hike in June...but that's not good for calming markets
Absolutely right!
So any wagers on which bank is next? There will be no Pause in June...this is just designed to give markets hope
Indeed it's just orchestrated illustration to keep the hope high for retail so that banks and funds can take their money.
Yep, total junk, the fed needs to be abolished. complete waste.
There is no alternative that's better.
A failed FED.
fire powell. he dont know how to drive
  we've seen retrumplicans on here saying they blame Biden for everything/all.
Just like dumocraps blamed Trump. Orange man bad.
First Last.. once again, dems have been blaming Trump, and still are, for everything in the past 3 years. It's called projection and Leftists function with that and hypocrisy.. every single day.
I hear - recession is behind the corner and we will tell you that only after you realize it
Fed's dual mandate is price stability and unemployment. Your objectives are best handled by fiscal policies by Congress and the President's adminstration.
stephen your Idea was tried in the 19 the century ...and it failed that's why the Fed was created.....
so being responsible with spending, failed?
Just like there was supposed to be a May pause.The 'June Pause' message is to keep markets strung out on "hopium". Anyway which bank is going to collapse next? Any wagers? Pac West?
Another manipulative rate pause 🐂💩news again......
now he says data will decide pause or hike in next fomc. So, what is his use. Data can be read by machines now a days. at least some hints about pause in next meet would have been fine. this is the problem with old people.
data can not yet be properly used by machines to suggest sound and meaningfull conclusions .... that is we need intelligent, well prepared old people ..... younger too
it is very clear that fed is rattled by the banking collapse. they have given themselves a leeway to protect banks and will most probably pause for now. further because of the high inflation for last 1 year the effect will now be on a bigger base and therefore show a smaller inflation number hereon
the market is slipping as usual. Those intelligent people are struggling now with bank collapse one after another.
nothing in market. sell on rise
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