- Fed policy statement due at 2pm ET (1800GMT)
- Markets expect interest rates to rise by a quarter of a percentage point
- Fed Chairman Powell will hold a press conference
WASHINGTON (Reuters) – The Federal Reserve is expected to raise interest rates on Wednesday and may signal a pause in the 14-month tightening cycle, as policymakers weigh the need to slow inflation against a pressing array of risks ranging from bank failures to turbulence. The possibility of the United States defaulting on its debts as soon as next month.
Investors expect the US central bank to continue raising interest rates by a quarter of a percentage point at the end of its latest two-day policy meeting. The policy statement is due at 2pm ET (1800 GMT), and Fed Chair Jerome Powell is scheduled to speak to reporters a half hour later.
But the new statement, and Powell’s clarification of it, will have to juggle a set of risks that have turned into more conflict.
Inflation was only slowly falling, leaving some Fed officials unconvinced that interest rates had risen enough to be brought under control; However, the economy itself appears to be weakening, and three of the recent bank failures have raised concerns about broader problems in the financial sector. The US government to stop paying its bills.
As of March, 10 of 18 Fed policymakers indicated they were likely ready to hold off on raising interest rates after another hike, expected at this week’s meeting, would take the Fed’s benchmark interest rate to a range of 5.00%-5.25%.
Between this consensus and the other problems that have intensified for the time being, the Fed is likely to at least open the door to the possibility that this hike could be the last in the current tightening cycle, in the absence of a future inflation surprise.
Just as the central bank had to grapple at its March 21-22 meeting with the fallout from the failures of Silicon Valley and Signature Bank, this time policymakers had to assess the collapse of the First Republic and determine whether the financial sector faced broader turmoil. Or it could potentially make credit less accessible and more expensive than the Fed believes is necessary to moderate inflation.
The trade-off for going ahead with a rate hike this time “Powell may have to adopt a less forward-looking tone in terms of prospects for further tightening at the next meeting,” Krishna Guha, a former New York Fed official who is now vice president of Evercore ISI , he wrote in a note before the policy decision.
Hints about the Fed’s direction will first come from the Federal Open Market Committee’s new rate-setting policy statement, which said as of March that the central bank “anticipates that some additional policy may be appropriate in order to reach a monetary policy stance that is sufficiently restrictive.” To reduce inflation.
That statement is consistent with what officials made clear in the economic forecasts released at the March meeting, when they saw at least one more price increase on the cards.
In 2019 and 2006, when the Fed shifted course in an environment when it was raising borrowing costs, it swapped language leaning toward higher rates for more neutral guidance – saying in June 2006 for example “the extent and timing of any further stabilization… It will depend on the evolution of the outlook for both inflation and economic growth.”
With rate hikes in the Fed’s statement since January 2022, HSBC analysts wrote, “we believe the FOMC is likely to moderate its future guidance on further rate hikes,” especially now that the policy rate after that meeting has reached Highest for most Fed officials. I expected.
To do otherwise would hint that those expectations have changed, a hawkish tilt toward more interest rate increases that the Fed will not want to lock in but also not guarantee.
(Reporting by Howard Schneider). Editing by Paul Simao
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