The Federal Reserve announced another 25-basis-point interest rate hike, marking the 10th consecutive hike bump in 14 months.
- Federal Reserve Chair Jerome Powell ended the May Fed meeting by announcing that another 25-basis-point interest rate hike is being implemented, bringing rates to 5% to 5.25%.
- Stocks saw a brief bump after the announcement before taking a larger dive afterward, with major indexes mostly breaking even in the hours leading up to the market closing.
- Powell acknowledged that an additional rate hike in June might be necessary, depending on how receptive the economy is to the new rates.
Why It’s News
The Fed’s ultimate decision has been a hotly debated and anxious one, with the entire stock market anxiously awaiting this morning’s announcement. As we reported yesterday, every major stock index and several smaller banks saw substantial valuation drops awaiting the news.
The decision has come at the end of a long process of reflection for the Fed. They have been trapped in a bind for months, with high inflation destroying American purchasing power on one end and high-interest rates sparking recession fears and unintentionally causing three of the largest bank collapses in U.S. history.
The Fed needed to take decisive actions to maintain its mandate of protecting the dollar and the job market, and it chose the latter risk.
“Inflation remains well above our longer-run goal of 2%. Inflation has moderated somewhat since the middle of last year. Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go,” says Powell.
“Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation, The extent of those effects remains uncertain … In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic an financial developments,” says a Fed statement.
Speaking after the announcement, Lazard chief market strategist Ronald Temple notes that pausing rate hikes may be necessary to see the degree to which the Fed’s current strategy is having a meaningful impact. “Assuming banking issues subside, additional rate hikes may be needed, but it’s time for a pause to allow the full effects of tightening to work its way through the economy.”