“The U.S. banking system is sound and resilient,” the Fed said.
The Federal Reserve raised its benchmark interest rate for the ninth consecutive policy meeting Wednesday, defying calls for a pause in tightening amid the ongoing U.S. banking crisis, adding that “additional policy firming” could still be needed in order to tame elevated inflation.
The Fed lifted its Fed Funds rate by 25 basis points to a range of 4.75% to 5%, the highest since 2008, and said policy makers remain “highly attentive to inflation risks”
The Fed’s new “Summary of Economic Projections” meanwhile, held to its forecast of a terminal Fed Funds rate of just over 5.1%, suggesting at least one more rate hike, even as officials indicated faster inflation estimates than in the December report.
“The Committee 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,” the Fed statement said. “In determining the extent of future increases in the target range, 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 and financial developments”
In a nod to the ongoing banking crisis, triggered by the collapse of Silicon Valley Bank and Signature Bank and the turmoil at First Republic, the Fed insisted the broader financial system remains “resilient”.
“The U.S. banking system is sound and resilient,” the Fed said. “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.”
On Wall Street, U.S. stocks pared earlier declines, with the S&P 500 marked 27 points higher on the session while the Dow Jones Industrial Average gained 132 points. The tech-focused Nasdaq was marked 180 points higher
Benchmark 10-year Treasury note yields slipped 2 basis points lower to 3.531% while 2-year notes fell 9 basis points to 4.046%. The U.S. dollar index, meanwhile, was marked 0.53% lower at 102.054 in the wake of the Fed announcement and prior to Powell’s press conference in Washington.
Markets are now pricing in a 55.3% chance that the Fed will hike rates by another 25 basis points in May, but the balance of bets for the Fed’s June meeting suggest rates holding at between 4.75% and 5% into the summer and beyond, with a small rate cuts priced-in for the Fed’s November meeting.
