On March 22, the Federal Reserve approved an additional rate hike of 0.25%, bringing the benchmark federal funds rate to a range of 4.75-5%, the highest level since September 2007. This ninth consecutive rate increase comes as many investors and market commentators questioned whether the rate hikes could be paused or even begin reducing at the March meeting, given the heightened stress around the banking industry earlier this month.
In the March announcement, the Open Market Committee adjusted their phrasing from anticipating some ongoing rate increases (which was present in their previous eight statements), to instead they anticipate that additional policy firming may be appropriate. The Fed’s post-meeting policy statement noted that it was still uncertain how much the economy would slow resulting from the recent banking stress and subsequent likelihood of tighter credit conditions for both households and businesses.
Given the uncertainty of the extent of these effects, they have shared it is too soon to determine how monetary policy should respond. The Federal Reserve’s Board members and Bank president’s median projected rate for December 2023 have been updated to 5.1%, suggesting the potential for an additional 0.25% rate hike before the end of the year. The Fed continues to target an inflation rate of 2%, which Fed Chairman Jerome Powell has cautioned was still far from being achieved. The Fed will continue to assess data and evaluate the impact of the rate hikes it has implemented to determine how to proceed with its policy.
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