Late at night! Federal Reserve raises interest rates and presses "pause button" target | Federal | Federal Reserve
On June 14th local time, the Federal Reserve of the United States concluded a two-day monetary policy meeting and announced that the current target range of 5% to 5.25% for the federal funds rate would remain unchanged, in line with market expectations. This is also the first time the Federal Reserve has pressed the "pause button" since initiating an aggressive rate hike cycle in March last year. Since the start of the interest rate hike cycle last year, the Federal Reserve has raised interest rates 10 times in a row, with a cumulative increase of 500 basis points. The federal benchmark interest rate has also risen from 0% -0.25% to 5% -5.25%.
US CPI rose 4% year-on-year in May, hitting a new low in over 2 years
Analysts point out that the Federal Reserve's suspension of interest rate hikes this time is likely due to the significant cooling of US inflation, and it is time to pause rate hikes to measure the lagging impact of this rate hike cycle on the US economy, especially the tightening of credit in the banking industry. On the day before the Federal Reserve announced its interest rate decision, which was the 13th, the US May CPI data was released, with a year-on-year increase of 4%, reaching a new low in March 2021, which is more than two years. Excluding volatile energy and food, the core CPI in May increased by 5.3% year-on-year, and the growth rate also slowed down.
The market expects the Federal Reserve to raise interest rates by 25 basis points before the end of the rate hike cycle
Given that the current inflation level in the United States is still higher than the Federal Reserve's target of 2%, market participants generally believe that the Fed's interest rate hike cycle has not yet reached the "end point". However, for the subsequent policy path, the futures market unanimously believes that the terminal interest rate for this cycle will be 5.25% -5.50%, which means there is still 25 basis points of room for interest rate hikes compared to the current level. However, there is significant disagreement in the market on whether the Fed will raise interest rates in July or September. In addition, the market also expects the Federal Reserve to cut interest rates as early as the end of this year.
Federal Reserve Chairman Powell hinted that further interest rate hikes are expected this year
The Federal Reserve Board of the United States concluded its two-day monetary policy meeting on the 14th and announced that the target range for the federal funds rate, which ranges from 5% to 5.25%, will remain unchanged.
This is the first time the Federal Reserve has suspended interest rate hikes after 10 consecutive rate hikes since March 2022, in line with previous market expectations.
In a statement released on the same day, the Federal Reserve stated that recent indicators indicate that US economic activity continues to expand moderately, with strong employment growth in recent months and unemployment rates remaining low, but inflation rates remain high. To support achieving maximum employment and a long-term inflation target of 2%, the Federal Reserve has decided to maintain the target range of the federal funds rate unchanged, allowing the Federal Open Market Committee of the Federal Reserve to evaluate more information and its impact on monetary policy.
The economic outlook forecast released by the Federal Reserve on the same day showed that the median forecast of the federal funds rate by Federal Reserve officials for this year has risen from 5.1% in March to 5.6%, indicating that interest rates will continue to rise this year. Meanwhile, the median forecast for this year's core personal consumption expenditure price index growth has risen from 3.6% in March to 3.9%, the median forecast for this year's actual GDP growth rate has risen from 0.4% in March to 1%, and the median forecast for this year's unemployment rate has dropped from 4.5% in March to 4.1%.
Federal Reserve Chairman Powell stated at a press conference that almost all members of the Federal Open Market Committee expect further interest rate hikes this year to be appropriate. The Federal Reserve has not yet made a decision on whether to raise interest rates at the July monetary policy meeting.
