Vijay Kumar Gaba

 The Federal Open Market Committee (FOMC) of the Federal Reserve of the US announced another 25bps hike, taking its key fed fund rate toa target range of 5.00 to 5.25%. This unanimous decision of the FOMC is the 10^th straight hike in the past twelve months. With this hike, the effective fed fund rate is now highest since the global financial crisis. Besides the hike, the Fed also maintains the plan to shrink the balance sheet each month by $60 billion for Treasuries and $35 billion for mortgage-backed securities.

…claims banking system “strong and resilient”

Noting the concerns in the financial markets, especially those arising from the failure of Signature Bank, Silicon Valley Bank and First Republic Bank, the FOMC emphasized that "The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks."

…reiterates “growth modest”, “job gains robust” and “inflation elevated”

The FOMC noted that recent data suggest that growth has been modest while “job gains have been robust” and inflation is “elevated.” Reiterating its commitment to the 2% inflation target, the Committee cautioned about the further slowdown in economic growth due to tighter credit. FOMC post policy meeting statement read, “tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.” This is very similar to what the FOMC had stated in previous policy statement in March 2023, which had come just after the collapse of Silicon Valley Bank and Signature Bank.

…stops short of saying “pause”

The latest FOMC statement omitted the previous wording ““some additional policy firming” and instead said it “will take into account various factors “in determining the extent to which additional policy firming may be appropriate”. Analysts largely interpreted this change as a signal for pause from the next meeting in June 2023; though no one suggested that any policy easing may be imminent.