Federal Reserve Pauses Interest Rate Hikes

For the first time in more than a year, it seems likely that policymakers at the Federal Reserve are going to put a halt on increasing the benchmark interest rate.

As inflation is starting to come down a bit – though it is still quite high – the central bank is expected to not raise interest rates at its next policy meeting on Wednesday of this week, which would mark the first time in the last 15 months that it did so.

A report from Bloomberg said that when the Federal Open Market Committee meets next on Wednesday, it is expected to keep the benchmark lending rate at the range of 5% to 5.25%. If it ends up doing that, it’ll be the first time since March of 2022 that interest rates weren’t increased. The committee has increased the rate for 10 consecutive meetings.

These efforts taken by the Fed have been done to try to bring down prices. That has happened for sure in recent months, but inflation as a whole still remains significantly above the goal that the Fed sets.

The Fed is also expected to set its benchmark rate at 5.1% by the end of this year, which is something that Wall Street investors will be paying particular attention to following Wednesday’s meeting.

Even though interest rates may not increase this week, policymakers at the Fed said that this shouldn’t be looked at as the final time that an increase will occur.

Jerome Powell, who serves as the chair of the Fed, suggested recently that he was in favor of taking a break from hiking interest rates so that they could asses what impacts the past increases are going to have, as well as what effects the recent failures of regional banks might have on the economy as a whole as well as credit conditions.

Powell will hold a press conference following Wednesday’s meeting.

Bloomberg Economics’ recent report read:

“Discord on the FOMC is mounting. Those who prefer to skip a hike in June want to wait and see – given the long and variable lags of monetary policy – how 500 basis points of rate hikes to date are cooling the economy.

“More hawkish members are convinced rates aren’t yet restrictive enough, and the Fed shouldn’t risk falling behind the curve.”

The Fed typically has a target for inflation at 2%. While inflation has come down recently, the new Consumer Price Index report that will be out this week is expected to show that there are many underlying pressures on prices remaining.

The core gauge of the CPI – which doesn’t take into account prices for energy or food, which are very volatile – is expected to increase 0.4% over last month. If that proves true, it would be the sixth month in a row that core inflation has gone up by at least that much.

Year-over-year, the core CPI is predicted to increase 5.2%, which would actually mark the slowest pace since back in November of 2021. Overall CPI is expected to go down to 4.1%, which is good news even though it’s still much higher than the Fed would like.