FOMC Raises Rates by 25 bps But Signals “Hawkish Pause”

Source: Economics Group of Wells Fargo Bank, N.A.

Summary

• As widely expected, the FOMC raised its target range for the fed funds rate by 25 bps today. The Committee has now hiked rates by 500 bps since March 2022, the fastest pace of monetary tightening since the early 1980s.

• The FOMC “remains highly attentive to inflation risks,” and Chair Powell noted in his post-meeting press conference that “we are prepared to do more if greater monetary policy restraint is warranted.”

• But the Committee does not appear to be pre-committing to another rate hike on June 14. In its March 22 statement, the FOMC said that it “anticipates that some additional policy firming may be appropriate.” Today’s statement dropped the reference to “anticipates.” Rather, the statement said “in determining the extent to which additional policy firming may be appropriate…”

• The Committee could indeed hike rates by 25 bps on June 14, but that decision will depend crucially on incoming data over the next six weeks. In our view, the bar to a rate hike on June 14 is higher than it has been at past meetings since March 2022.

• In sum, we would characterize today’s meeting as a “hawkish pause.”

As widely expected, the Federal Open Market Committee (FOMC) decided unanimously today to hike rates by 25 bps, which brings its target range for the federal funds rate to 5.00%-5.25% (Figure 1). The Committee has now hiked rates by 500 bps since March 2022, the fastest pace of monetary tightening since the early 1980s. In explaining its decision to increase the target range again, the FOMC noted that “job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.” This characterization of the current state of the U.S. economy is essentially unchanged from the March 22 statement. READ FULL ARTICLE >>