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Home Economy

FOMC pauses rate hikes, says more increases likely coming

June 14, 2023
Reading Time: 1 min read
FOMC raises rates by 25 basis points

Federal Reserve Chairman Jerome Powell.

The Federal Open Market Committee today announced it would leave the target range for the federal funds rate at 5% to 5.25%, marking the first pause since it began raising rates last year. However, the FOMC said that future rate hikes will likely be needed to return inflation to the Federal Reserve’s 2% target.

The FOMC voted to increase the rate by 25 basis points in May, which was the 10th consecutive rate hike. Fed Chairman Jerome Powell said that given how quickly the FOMC had raised rates, “we judged it prudent to hold the target range study to allow the committee to assess additional information and its implications for monetary policy.” The median projection among FOMC participants for the appropriate rate level was 5.6% by the end of the year, 4.6% by the end of 2024 and 3.4% by the end of 2025, he added.

“The main issue that we’re focused on now is determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time,” Powell said. “The pace of the increases and the ultimate level of increases are separate variables. Given how far we have come, it may make sense for rates to move higher, but at a more moderate pace.”

Powell said there was no discussion during the FOMC meeting on the possible pace of those future rate increases. As far as what committee members will be looking for, the chairman said there are signs that inflation in goods and housing is coming down, but little movement on non-housing services, which is labor intensive. “Many analysts would say that the key to getting inflation down there is to have a continuing loosening in labor market conditions, which we have seen … we need to see that continue,” he said.

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Walt Williams

Walt Williams

Walt Williams is senior editor of ABA Banking Journal.

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