As was broadly expected, the Federal Reserve Bank unanimously approved another quarter percentage point interest rate increase at its May meeting. This move marks the tenth interest rate hike since the Fed initiated its aggressive monetary policy to curb inflation, which reached a 40-year high in June 2022, and brings the benchmark Federal Funds Rate to 5%-5.25%, its highest level in 16 years.
The latest rate increase comes amidst a climate of economic turmoil in the banking sector following the collapse of three regional banks in the past couple of weeks. However, Fed Chair Jerome Powell remains confident that the worst of the banking crisis is behind us. “There were three large banks, really, from the very beginning that were at the heart of the stress that we saw,” he said. “Those have now all been resolved, and all the depositors have been protected.”
The Fed has been walking a thin line as it attempts to cool down inflation–which has been declining slower than expected–without leading the United States into a major recession. Some indicators seem to show that the Fed’s policy is working, including more muted consumer spending and factory activity and a decline in job openings in February and March. Nevertheless, the job market remains tight, and inflation remains higher than the Fed’s targeted 2% rate. “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” the Fed’s statement said. “The extent of those effects remains uncertain.”
The Last Interest Rate Increase?
Mr. Powell has been very vocal about his intent to maintain the Fed’s hawkish policy until inflation remains firmly under control. However, in his post-meeting press conference, he left the door open to a pause by omitting the language present in previous briefs indicating that interest rate increases would be ongoing until inflation reached its target rate. “People did talk about pausing, but not so much at this meeting. There’s a sense that we’re much closer to the end of this than to the beginning,” Powell said. “If you add up all the tightening that’s going on through various channels, we feel like we’re getting close or maybe are even there, but again that is going to be an ongoing assessment.”
The Fed intends to monitor the economic indicators and re-evaluate its position at its upcoming meeting on June 13-14. “I think that policy is tight,” Mr. Powell said. But he added, “We are prepared to do more if greater monetary policy restraint is warranted.”
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
