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Fed Raises Rates by Quarter Point, Signals Pause in Hiking Cycle



  • The Fed votes to raise its benchmark rate by 25 basis points to a range of 5.00% to 5.25%, a move broadly consistent with market expectations
  • The decision to push ahead with another hike is part of the efforts to restore price stability, with inflation well above the central bank’s 2.0% target
  • The FOMC guidance signals a pause in the tightening cycle

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Updated at 3:25 pm ET

S&P 500 futures initially advanced after the Fed signaled a possible pause in rate hikes, but then turned lower during Powell’s press conference following comments that policymakers do not foresee cutting borrowing costs this year, given the view that inflation will not come down fast enough to warrant such action. If this message sticks on Wall Street, the equity market could be in for a rude awakening soon.


Source: TradingView

Updated at 2:30 pm ET

Immediately after the FOMC announcement crossed the wires, the U.S. dollar, as measured by the DXY index, deepened session losses, while S&P 500 futures extended gains, with traders welcoming the Fed’s move to flag a potential pause in the tightening campaign.


Source: TradingView

Original article published at 2:10 pm ET

The Federal Reserve today concluded one of its most anticipated meetings in recent times and voted unanimously to increase its benchmark interest rates by 25 basis points to a range of 5.00% to 5.25%, the highest band and thus the most restrictive policy stance since 2007.

The Fed’s decision to press ahead with another hike was broadly expected leading up to Wednesday’s announcement and is part of the central bank’s aggressive efforts to restore price stability in the economy, with headline inflation sitting at 5.0% in March, well above the long-term 2.0% target.



Source: DailyFX Economic Calendar

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In the policy statement, the bank took a downbeat tone on growth, noting economic activity expanded at a modest pace in the first quarter, but countered those pessimistic comments with more positive ones about the labor market, emphasizing that job gains have been robust.

In terms of the consumer price outlook, policymakers indicated that inflation continues to be elevated and that the committee remains highly attentive to inflation risks. It was also underscored that recent developments tied to the banking sector crisis could weigh on economic activity, hiring and inflation.

On monetary policy, the FOMC adjusted its guidance to signal a pause in the hiking campaign, substituting language that “some additional policy firming may be appropriate” for “in determining the extent to which additional policy firming may be appropriate” the bank will take into account the cumulative tightening of monetary policy.

The revised guidance suggests the Fed will stay on hold at upcoming meetings, but will retain a data-dependency approach, keeping its options open should further tightening be warranted in the future due to unforeseen circumstances. In any case, the May message is clearly more dovish than the one conveyed in March. This should be bearish for the U.S. dollar in the near term.

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