Fed’s most aggressive increases in 40 years made history.
Raised its key short-term interest rate by a quarter percentage point Wednesday and signalled it could now pause if inflation continues to ease as expected.
Fed removed previous guidance that “some additional policy firming Hikes may be appropriate” to lower yearly inflation to its 2% target.
Wednesday’s hike raises the key rate to a range of 5% to 5.25%, the highest in 17 years. And the Fed got there in near-record time, hoisting the rate from near zero in March 2022 as it sought to beat back inflation that also reached a four-decade high last June as the economy continued to emerge from the pandemic.
Although consumer price increases have softened since then, a “core” measure that strips out volatile food and energy items has climbed more than expected this year. That prompted futures markets to predict the Fed would lift rates as high as 5.6% in 2023.
Silicon Valley Bank Failure
Bank have caused financial institutions to toughen lending standards and Fed officials have said that’s likely to slow the economy and inflation, leaving less work for them to do. This week, First Republic Bank collapsed as well.
The nation’s gross domestic product grew at a modest 1.1% annual rate in the first quarter. Consumer spending, which makes up 70% of GDP, increased by a more robust 3.7% but outlays have lost steam since a weather-related surge in January. Manufacturing output also has declined.
Inflation To Peak in June
Barclays says the Fed could hike again in June if job growth this month tops 200,000 and core inflation increases by about 0.3% or more
Will Inflation come down? Please leave a comment below.