The Federal Reserve is set to deliver a quarter-point rate hike on Wednesday in what would be its tenth consecutive increase in just over a year, as pressure builds on the US central bank to call time on its aggressive campaign to tighten monetary policy.
At the end of its two-day meeting, the Federal Open Market Committee is expected to raise its benchmark policy rate to a new target range of 5-5.25 percent, the highest level since mid-2007.
The meeting comes at a perilous moment for the US economy and financial system as medium-sized lenders continue to falter after a series of bank failures.
First Republic on Monday became the third bank to be taken over by US regulators in the past two months, as the FDIC brokered a hasty takeover by JPMorgan. This followed emergency measures taken by government authorities in March, just days before the last meeting of the Federal Reserve, to stem contagion after the collapse of Silicon Valley Bank and Signature Bank.
Officials on Wednesday must confront the challenge of balancing potential credit deflation stemming from banking turmoil against the fact that inflation remains stubbornly high and price pressures are only gradually easing.
Meanwhile, the Federal Reserve is under increasing political pressure. In a speech on Tuesday, 10 Democratic lawmakers called on Jay Powell, the chairman of the Federal Reserve, to refrain from further rate increases, warning that further increases could “spur a recession, putting millions out of work and crushing small businesses.”
Fed policymakers are not expected to box themselves in by ruling out further rate hikes. However, most economists believe Wednesday’s increase will be the last of the cycle, especially after Fed staff soured on expectations and began predicting a recession this year.
In March, the FOMC indicated that “some additional policies may be appropriate,” a relaxation of guidance that had been in place since March 2022, when the central bank said “continued increases” were needed.
Most Fed watchers expect the Fed to stick to its latest language or make modest changes.
Others think the Fed might rehash the wording it last used at the end of the 2006 tightening campaign, when it said “the extent and timing of any further confirmation . . . will depend on the evolution of expectations for both inflation and economic growth.”