On May 3, the Federal Reserve increased interest rates by another 0.25% but hinted that further increases may be paused as officials assess the effects of recent bank failures, monitor inflation and eye a possible resolution to the debt ceiling standoff in Washington, according to a the Fed’s Open Market Committee statement and media reports.
“Economic activity expanded at a modest pace in the first quarter,” the Fed said in its statement. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.”
The vote to increase rates was unanimous, and it could signal a new stage of the central bank’s management of the recovery from the COVID-19 pandemic, Reuters reported. The vote lifted the Fed’s benchmark overnight interest rate to the 5%-5.25% range.
It is the 10th consecutive increase since March 2022.
“The Committee will closely monitor incoming information and assess the implications for monetary policy,” the Fed said. “In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
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