The US Federal Reserve Open Market Committee (FOMC) decided to hike the key federal fund rate by 25bps to 4.75% - 5% range. This is the eighth straight hike decision by the FOMC since the Fed started its fight against inflation in March 2022; bringing the rates to highest since September 2007.
Speaking to the press post FOMC meeting, the Fed chairman Jerome Powell, dismissed the speculation about any imminent rate cuts, stating “FOMC participants don't see rate cuts this year, it is not our baseline expectations”.
The post meeting statement of FOMC indicated that the policy may remain sufficiently restrictive though future hikes shall be data dependent. The statement read “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 percent over time” and “The Committee will closely monitor incoming information and assess the implications for monetary policy”.
The market participants interpreted the statement to imply that at least one more rate hike of 25bps will be done this year, before the Fed hits a pause button.
Powell emphasized that the Fed is “committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so.” Speaking about the recent banking sector crisis, the chairman assured that “US banking system is sound and resilient” and the Fed is “prepared to use all of its tools to maintain stability.” He however admitted that recent banking turmoil is “likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes.”
The Fed maintained that the current pace of quantitative tightening (QT) shall continue, though recent emergency measures to mitigate the impact of the banking crisis have resulted in expansion of its balance sheet.
The US equities ended the session with a cut of 1.6%; while US dollar index 9DXY) lost 0.7%.
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