The FOMC has followed through with its expected plan and increased rates by 25 basis points to 5.00-5.25%. The decision was unanimous. The Fed has also hinted at a possible pause in rate hikes by eliminating the language that suggested more policy firming may be necessary to achieve a sufficiently restrictive stance.
The Fed has stated that it will take into account policy lags, tightening to date, and other developments when determining whether additional policy firming is required.
The Fed has acknowledged that tighter credit conditions could have a negative impact on the economy, hiring, and inflation. However, the Fed has also noted that job gains have been strong and inflation remains elevated.
During the press conference, Fed Chair Powell emphasized the importance of the dual mandate and their commitment to reducing inflation back down to 2%. The Fed will take a data-dependent approach to determine the need for further rate hikes. Powell acknowledged that inflation is still above the targeted goal, with continued high pressure, but it has moderated slightly. There is still much work to be done to decrease inflation, and the Fed is ready to take further action if necessary.
During the Q&A session, Fed Chair Powell clarified that while no decision was made on a pause, the recent statement change holds significant meaning. Going forward, the Fed will be guided by incoming data and will assess whether they have reached a sufficiently restrictive level in each meeting. Powell also noted that the Senior Loan Officer Opinion Survey aligns with banks tightening lending standards and the pace of lending slowing.
The Committee acknowledges that inflation is unlikely to decrease rapidly and it may not be appropriate to cut rates. There was considerable support for a rate hike, although not as much for a pause in this meeting. Powell concluded by stating that they are approaching the end and feel they are close to their goals.