The Fed’s rate increases since March 2022 have more than doubled mortgage rates, elevated the costs of auto loans, credit card borrowing and business loans and heightened the risk of a recession. “As such, there is a risk that the pause is temporary.” Still, if inflation were to accelerate, the Fed “won’t hesitate to resume hiking interest rates because they’re determined to break inflation’s back,” said Ryan Sweet, chief economist at Oxford Economics. James Knightley, chief international economist at ING, suggested that “with lending conditions rapidly tightening in the wake of recent bank stresses, we think this will mark the peak for interest rates.” When asked whether the Fed’s key rate was now high enough to restrain the economy and curb inflation, Powell said, “We may not be far off - or possibly even at that level.” Photo: ASSOCIATED PRESS/Carolyn Kaster Previous Next Such lending cutbacks, he added, will likely help slow the economy, cool inflation and lessen the need for the Fed to further raise rates.įederal Reserve Chairman Jerome Powell arrives to speak during a news conference in Washington, Wednesday, May 3, 2023, following the Federal Open Market Committee meeting. The Fed chair stressed his belief that the collapse of three large banks in the past six weeks will likely cause other banks to tighten lending to avoid similar fates. In doing so, he said, the central bank would set its rate policy on a meeting-to-meeting basis. He said the Fed would also monitor other factors, including the turmoil in the banking sector, to determine whether to pause its rate hikes. Having raised their key short-term rate by a substantial 5 percentage points since March 2022, Powell said, Fed officials can step back and assess the impact of higher rates on growth and inflation. But he pointed to the change in the statement’s language as confirming at least that possibility. Speaking at a news conference, Chair Jerome Powell said the Fed has yet to decide whether to suspend its rate hikes. It replaced it with language that said it will now weigh a range of factors in “determining the extent” to which future hikes might be needed. In a statement after its latest policy meeting, the Fed removed a sentence from its previous statement that had said “some additional” rate hikes might be needed. But the Fed also signaled that it may now pause its streak of 10 rate hikes, which have made borrowing for consumers and businesses steadily more expensive. WASHINGTON (AP) - The Federal Reserve reinforced its fight against high inflation Wednesday by raising its key interest rate by a quarter-point to the highest level in 16 years.
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