As widely anticipated, the Federal Reserve raised interest rates by a quarter percentage point and hinted it may be the final move in the most aggressive tightening campaign since the 1980s as economic risks mount.
The released statement read:
The Committee will closely monitor incoming information and assess the implications for monetary policy [It omitted the line from the March statement the Committee anticipates that some additional policy may be appropriate]…the Committee will take into account various factors in determining the extent to which additional policy firming may be appropriate.
The increase lifts the Federal Funds target range to 5.0%-5.25%, the highest since 2007, up from nearly zero percent early last year. The increase is logarithmic and is historical.
While the Fed may be finished raising rates, Powell and his colleagues have pledged to keep them elevated for a time to make sue the central bank’s preferred measure of inflation—down from last year’s peak of 7% to 4.2% as of March—continues receding toward the 2% target.
Powell indicated bank conditions had “broadly improved” since early March but the strains in the sector “appear to be resulting in even tighter credit conditions for households and businesses.”
The Committee also stated “the case of avoiding a recession is more likely than that of having a recession,” a view that is in direct contradiction of almost every economist. There is near unanimity that a recession will commence sometime this year, the timing of which is constantly being pushed further into the future.
Equites were initially unchanged following the meeting but closed marginally lower perhaps under the realization that an interest rate cut may not occur this year as largely predicted.
The bond market as measured by swap contracts think the inverse, indicating “significant easing in monetary policy before the end of 2023.”
Regarding the debt ceiling, FRB Chair Powell said the failure to raise the debt limit would be unprecedented and have highly uncertain and negative effects on the economy and global markets. He also indicated spending and debt levels are at unsustainable levels.
What will happen today? AAPL earnings are released at the close. Tomorrow the pivotal BLS April Employment report is released.
Last night the foreign markets were mixed. London was down 0.84%, Paris down 0.90% and Frankfurt down 0.74%. China was up 0.82%, Japan up 0.12% and Hang Seng up 1.27%.
Futures are marginally lower ahead of AAPL’s earnings and continuing angst in the regional banking sector. The 10-year is off 3/32 to yield 3.35%.
