Updated May 3, 2023 - Economy

Fed raises interest rates, hints possible end to series of hikes

Fed chairman Jerome Powell speaks during a news conference last month. Photo: Chen Mengtong/China News Service/VCG via Getty Images

The Federal Reserve raised interest rates by a quarter percentage point on Wednesday, marking the 10th consecutive move in an aggressive hiking campaign that began a year ago to cool inflation.

Why it matters: As the banking system shows renewed signs of stress, the central bank gave its strongest signal yet that it could pause its series of rate increases.

Driving the news: In a policy statement, which is parsed by economists and traders, the Fed said it would monitor economic and financial data to assess "the extent to which additional policy firming may be appropriate."

  • In other words, it is leaving the door open to another increase at its next policy meeting in June should, for example, the economy pick up momentum or inflation prove more persistent than expected.
  • If that's not the case, officials could choose to pause its rate hiking cycle.

Stock prices began to decline and interest rates rose Wednesday afternoon, shortly after Fed chair Jerome Powell during a news conference reiterated the central bank's focus on returning inflation to its 2% target.

  • "We are prepared to do more," Powell said.
  • "A decision on a pause was not made today," Powell said.

Between the lines: Wednesday's policy statement came as a small, but notable change from the last one in March, when the Fed said it would monitor developments to determine the "the extent of future increases" in its target range.

  • The Fed also removed a line from its latest statement that said "additional policy firming may be appropriate."

Yes, but: Powell seemed to downplay the prospect that rate cuts are coming anytime soon, saying Fed policymakers' view was that inflation would take some time to relent.

  • If that scenario were the case, Powell said, "It wouldn't be appropriate for us to cut rates."
  • Those comments weighed on stocks, as the S&P 500 soon fell into negative territory for the day's session.

Details: The Fed raised its federal funds rate target to a range of 5% to 5.25%, a decision that was unanimous among voting officials.

Where it stands: In recent months, inflation and labor market data have come in stronger-than-anticipated — suggesting the economy continues to have underlying momentum, despite the rapid rate hikes over the past year meant to cool off economic activity.

  • Complicating the Fed's calculus are three bank failures: Silicon Valley Bank and Signature Bank last month; and First Republic Bank earlier this week.
  • Some Fed officials have previously said strains in the financial system could aid its fight against inflation if banks restrain credit to consumers.
  • But the extent to which that already is underway — and whether it might cause a more severe slowdown than officials would like — is unclear.

Editor's note: This story has been updated with additional details.

Go deeper: What the Fed's 2006 playbook signals about a rate hike

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