U.S. Fed raises interest rate by 0.25%, signaling possible pause

May 04, 2023 (MLN): The U.S. Federal Reserve raised interest rate by 25 basis points to 5.00%-5.25%. This brings the benchmark funds rate to its highest level in 16 years, and marks the tenth increase in just over a year.

Following the hike, Fed Chairman Jerome Powell stated that it is a meaningful change to no longer say we anticipate more firming of policy, which opens the door to a potential rate-hike pause.

However, Powell also added that it’s not possible to say with confidence if the Fed has reached a sufficiently restrictive level.

The Fed will continue reducing its balance sheet as planned and Powell emphasized that the U.S. banking system is sound and resilient. The Fed is committed to learning the right lessons and bringing inflation back down to 2%, he added.

Powell acknowledged that inflation pressures continue to run high and the Fed will take a data-dependent approach to determine the extent of further rate hikes.

He also warned that the economy is likely to face headwinds from credit conditions. Powell emphasized that the Fed will make rate determination meeting by meeting and is prepared to do more if warranted.

Notably, Powell expressed optimism that the likelihood of avoiding a recession is more likely than having it.

Following this move, U.S. stocks (S&P500) shed 0.54%, gold gained 0.4%, while U.S. dollar index (DXY) fell 0.51%.

On the other hand, both oil benchmarks, Brent crude and West Texas Intermediate (WTI) are down 4.14% and 4.53% respectively on the day.

Closing in on the press conference, Powell remarked that the Fed feels like it's close, or maybe even there in terms of reaching a sufficiently restrictive level.

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