US | Policy rate climbs above 5%, but the Fed hints it may pause at the next meeting

Summary

The overall tone of the statement remained hawkish amid first-quarter developments in the real economy, but for the first time since the beginning of the tightening cycle the Fed no longer explicitly “anticipates” the need for more hikes ahead.

Key points

• Key points:
• As widely expected, the Fed raised the fed funds rate by 25 bps to a 5.00-5.25% target range, thereby reaching the terminal rate achieved during the 2004-2007 tightening cycle.
• Chair Powell put a dovish spin to the still hawkish statement in the Q&A by noting that there are some initial signs that supply and demand in the labor market “are coming into better balance.”
• The Fed continues to expect that tighter credit conditions arising from the recent banking-sector turmoil “are likely to weigh on economic activity, hiring, and inflation.”
• All this supports the argument that further hikes ahead are less likely as monetary policy is now working in tandem with tighter credit conditions, even if its effects still “remain uncertain.”

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