- The FOMC voted to raise the Federal Funds target rate by 25 basis points to a range of 5.00 – 5.25%. This was a unanimous decision by the Committee and was consistent with market expectations.
- Following the third banking failure in the last two months, the Committee reiterated language in the official statement affirming a sound and resilient U.S. banking system but also noted that the extent of the effects of tighter credit conditions remains uncertain.
- The statement also suggests that the FOMC could be done raising rates. A phrase from the previous statement that “some additional policy firming may be appropriate” was replaced with language stating that the Committee will monitor the lags with which monetary policy affects economic and financial developments “in determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time.”
- In his press conference, Fed Chair Powell said that the Committee will take a data-dependent approach to future policy actions. If the Committee’s view that inflation will not come down quickly is accurate, he stated that it would not be appropriate to cut rates.
- There were no prepared remarks about the approaching deadline to raise the debt ceiling. When asked in the press conference, it was emphasized that the debt ceiling is a fiscal policy issue to be handled by elected officials in Congress but it needs to be raised.
- Equity markets had been higher on the day prior to the rate announcement. Keeping with recent FOMC meeting day volatility, markets spiked further immediately following the rate announcement before ultimately turning lower to close the trading session. Treasury markets rallied, with yields at 1-year and longer maturities falling on the day.
- The U.S. economy has slowed, with the annualized pace of GDP growth in the first quarter of 2023 being a modest 1.1%. This was below market expectations but still above the 0.4% median forecast for 2023 from the March FOMC economic projections.
- Despite moderating somewhat, inflation remains well above the Fed’s 2% target. The Fed’s preferred measure of inflation, Core PCE, rose 4.6% in March, flat from February but ahead of an expected decline to 4.5%.
- Labor market data signals continue to be mixed. Job vacancies have declined and the labor force participation rate has increased, but unemployment remains near multi-decade lows and the demand for jobs still exceeds the supply of available workers.
The FOMC is next scheduled to meet June 13-14, 2023.
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