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Fed increases rates a quarter point and signals a potential end to hikes

On Wednesday, the Federal Reserve approved its 10th interest rate increase in just over a year and hinted that the current tightening cycle is ending. A unanimous decision by the Federal Open Market Committee raised the benchmark borrowing rate by 0.25 percentage points. This rate governs what banks charge one another for overnight lending, but it also affects many consumer debt products, such as mortgages, auto loans, and credit cards. As a result of this increase, the federal funds rate is now expected to range between 5% and 5.25%, its highest level since August 2007. Market participants, however, are more concerned about whether the Federal Reserve will pause here, particularly in light of lingering concerns over economic growth and a banking crisis that has rattled nerves on Wall Street. Stocks rose slightly, and Treasury yields were mostly lower immediately following the Fed news, but stocks struggled to hold on to the gains.

During Wednesday’s news conference, Chairman Jerome Powell said, “a decision on a pause was not made today” but noted the change in the statement language around future policy firming was “meaningful.” The post-meeting statement clarified the future pace of rate hikes — not by what it said but by what it didn’t say. The document omitted a sentence in the previous statement saying that “the Committee anticipates that some additional policy firming may be appropriate” for the Fed to achieve its 2% inflation goal. The statement also tweaked the language to outline the conditions under which “additional policy firming may be appropriate.” Previously, the FOMC had framed forward guidance around determining “the extent of future increases in the target range.” The statement reiterated that the Fed “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” The moves are at least a tenuous nod that while tight policy could remain in effect, the path ahead is less clear for actual interest rate hikes as policymakers assess incoming data and financial conditions.

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