economicsClosed May 3, 2023
Powell Says Fed’s Inflation Outlook Doesn’t Support Rate Cuts
- FOMC raises rates by quarter point in unanimous vote
- Statement omits language signaling more rate hikes are ahead
- Powell says banking conditions have ‘broadly improved’
- Fed chair sees modest economic growth, not recession
Jerome Powell
Photographer: Al Drago/BloombergThanks for joining us. Here are five key takeaways from Wednesday’s Federal Open Market Committee rate decision and Federal Reserve Chair Jerome Powell’s press conference:
- The Fed raised rates by a quarter percentage point to a range of 5%-5.25% and said it would pivot to making decisions on a meeting-by-meeting basis, opening the door to a pause after this. Both were broadly expected by markets.
- The decision was unanimous. Chicago Fed President Austan Goolsbee, who has sounded a more dovish note following recent banking sector stress, did not dissent. In his post-meeting press conference, Powell said support for the 25 basis-point hike was “very strong.”
- The Fed said inflation, labor-market and credit conditions data will factor into future policy, with Powell noting that the job market is still very tight, and uncertainty about how much reduced lending from banks will contribute to a cooling in the economy still uncertain. The Fed will also continue its balance sheet runoff.
- Powell answered several questions about the Fed’s SVB report, saying the central bank will work to strengthen both supervision and regulation for midsize banks. He also said that it’s “essential” for the debt ceiling to be raised and that a US government default could be quite adverse.
-
The market reaction in both stocks and Treasury yields was fairly muted compared to prior meetings. The S&P 500 declined 0.6% as of 3:33 p.m. in New York. The 2-year Treasury yield was down 6 basis points to 3.9%.
