NEW YORK (Reuters) - The Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point and signaled it may pause further increases, giving officials time to assess bank failures, how the Washington standoff over the U.S. debt ceiling plays out, the course of inflation.
The U.S. central bank lifted it's benchmark overnight interest rate to the 5.00%-5.25% range, it's tenth consecutive increase since March 2022, and dropped language in it's policy statement saying the Federal Open Market Committee still "anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time," replacing it with a more qualified statement.
STORY:
MARKET REACTION:
STOCKS: The S&P 500 added to gains and was 0.4% higher
BONDS: Benchmark 10-year note yields ticked lower, then higher to 3.4012% after the decision; The 2-year note yield inched up to 3.941%
FOREX: The euro extended a slight gain and was last up 0.57% at $1.1062. The U.S. dollar index was off about 0.5%
COMMENTS:
BRIAN COULTON, CHIEF ECONOMIST, FITCH RATINGS, LONDON
"The Fed is no longer flagging that further hikes should clearly be expected but this falls short of a strong commitment to ‘pause’ on rate hikes. They are still talking about how they will determine the ‘extent’ of additional policy firming - not whether additional tightening is needed or not. The ongoing tightening of credit conditions is recognized but they have still raised rates today and have left the window open for future hikes. Inflation is still their main concern and they will not have been encouraged by recent wage developments."
TOM GARRETSON, STRATEGIST, RBC (TSX:RY) PORTFOLIO ADVISORY GROUP, MINNEAPOLIS, MINNESOTA
"It was a pretty dovish rate hike today. The expectations were that it might be a bit more of a hawkish rate hike in terms of leaving the door open to further hikes if needed."
"The updated language in the policy statement does suggest the bar is going to be quite high for further rate hikes. The statement is pretty clear that today's hike is probably the last."
"Treasury yields have fallen and the dollar has weakened so it's a pretty dovish market reaction."
MICHAEL JAMES, MANAGING DIRECTOR OF EQUITY TRADING, WEDBUSH SECURITIES, LOS ANGELES
"The headlines were pretty much what people were expecting, but there's a little twist in terms of what is going to cause the Fed to pause. So I don't think it's as clear cut as 25 basis point hike and no further hikes or a pause in the short term."
"I think it's going be more important than the headlines to listen to the commentary and explanations from Chair Powell when his press conference starts."
"I don't think the headlines themselves about the Fed's decision were as clear cut as maybe some were hoping to see. There still needs to be some color around the Fed's short-term intentions for rates."
TIM GHRISKEY, SENIOR PORTFOLIO STRATEGIST, INGALLS & SNYDER, NEW YORK
“The statement was ho-hum. The only change in the statement really didn't say anything about the future. It's simply said we're going to be data dependent. … The market is hoping or expecting the Fed to pause after this rate hike. But clearly, they're not going to show their cards until the next Fed meeting.”
“The evidence of disinflation is slowly but surely mounting. Certainly, inflation is not accelerating down, but it's crawling its way down. So, I think the Federal continues to be data dependent.”
“Certainly, the banking crisis doesn't help the economy. It's going to be tougher to get credit and there are going to be fewer places now to go to get credit. That will be cause a natural slowdown in the economy.”
ROB HAWORTH, SENIOR INVESTMENT STRATEGIST, U.S. BANK ASSET MANAGEMENT, SEATTLE
“Investors are trying to understand whether this is a pause or not. How is Powell and the committee thinking about the evolving data and the factors they cite in the press release? Investors are looking for how the Fed is thinking about the banking conditions and lending and the economy. What will enough be?”
“The market is pricing a pause at this point, with slight odds that they will hike again or cut. But the preponderance of data says we’re on pause.”
“The market is trying to incorporate the data and anticipate the Fed. The Fed is trying to indicate a direction, and the market is looking further down the path than the Fed’s willing to communicate.”
ADAM BUTTON, CHIEF CURRENCY ANALYST, FOREXLIVE, TORONTO
“This is as clear of a signal of a pause as one could hope for from the FOMC… The Fed was never going to come out and clearly say that it’s on the sidelines because the facts can change with economic data. But the way I would say it is the Fed is on the sidelines now and the questions becomes for how long? So the name of the game now is watching economic data and trying to find signs of weakness in the U.S. economy or stubborn strength.“
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“When having to choose between hawk and dove, the FOMC opted for chicken instead. There isn’t a credit crunch, but there are credit cracks. Manufacturing and housing have been in a recession already. Services is set to slow. This move is consistent with our “slow-flation” theme where we think we will see sub-par growth and inflation only gradually returning to 2%. Gradual is good enough when it comes to inflation. A pause, however, isn’t good enough though to avert at least a mild recession.”
MICHELE RANERI, HEAD OF U.S. RESEARCH AND CONSULTING, TRANSUNION
“This latest increase is an indicator that while inflation has slowed and the economy has cooled generally, the Fed believes we have not quite reached the point where interest rate hikes can be halted entirely. From a consumer credit perspective, the impact of further rate hikes will likely continue to be felt by borrowers across a range of industries. Some examples include consumers who are looking to buy a car, or perhaps those seeking to purchase a home, or refinance one they already own. For as long as interest rates remain relatively high, consumers are advised to continue to be diligent in keeping their own individual credit profiles in the strongest financial positions they can be. This includes continuing to pay down as much high-interest debt as they are able to, ensuring they have an ability to pay for any new debt acquired, and continuing to maintain a consistent record of on-time bill paying overall.”
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, NEW YORK.
"For me the key was a change of a single word, saying that they believe that they will be determining whether future raises are necessary, whereas last time they said that they are anticipating that further rate hikes will be necessary."
"With the word 'determining' in place of 'anticipating' is essentially telling the markets that the Fed is now on pause."