LA FED APUNTA EL POSIBLE FINAL DE LAS SUBIDAS DE LOS TIPOS DE INTERÉS
Federal Reserve Raises Rates, Signals Potential Pause -- WSJ
Wed May 03 14:04:00 2023
By Nick Timiraos
WASHINGTON -- The Federal Reserve approved another quarter-percentage-point interest-rate rise and signaled it could be done lifting rates after that.
The decision Wednesday marked the Fed's tenth consecutive rate increase aimed at battling inflation and will bring its benchmark federal-funds rate to a range between 5% and 5.25%, a 16-year high.
In a hint that officials could pause rate increases after the latest move, they cut a phrase from their previous policy statement, in March, that said some additional policy increases might be appropriate.
Instead, officials said in their new statement Wednesday they would monitor economic and financial-market developments and the effects of their earlier rate increases "in determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time."
The statement used language broadly similar to how officials concluded their interest-rate increases in 2006, with officials indicating any further change in rates was more likely to be an increase than a decrease.
All 11 voters on the rate-setting Federal Open Market Committee agreed to the decision.
The Fed raised interest rates at its previous nine meetings by a cumulative 4.75 percentage points from near zero in March 2022 through March 2023, the most rapid series of increases since the 1980s.
Officials considered skipping a rate increase in March after the failures of two regional lenders raised worries about a bank-funding crisis. But they concluded that the stresses had calmed enough on the eve of their March 22 decision to move ahead with an increase.
The sale of First Republic Bank to JPMorgan Chase by the Federal Deposit Insurance Corp. announced Monday showed how those strains are still clouding the economic outlook. Shares of midsize Western banks slid Tuesday as investors digested the implications of First Republic's sale, which wiped out its shareholders.
The Fed fights inflation by slowing the economy through raising rates, which causes tighter financial conditions such as higher borrowing costs, lower stock prices and a stronger dollar. Banking stresses are expected to further tighten financial conditions, but the magnitude of any credit crunch is hard to predict and might not be apparent for months.
Until now, officials have been looking for clear signs of a slowdown to justify ending rate rises, but after this week, that could flip. Now, they might need to see signs of stronger-than-expected growth, hiring and inflation to continue raising rates.
In projections released after their meeting in March, most Fed officials thought they would need one more quarter-point rate rise before moving to the sidelines. But seven of the 18 officials thought they might need at least two more increases.
At that meeting, the Fed staff forecast a recession would start later this year due to the banking-sector turmoil. The staff hasn't usually projected a recession before a downturn begins. Previously, the staff had judged a recession was roughly as likely to occur as not this year.
Since then, the economy has shown only modest signs of cooling, including more muted consumer spending and factory activity. Job openings declined in February and March, and the share of private-sector workers voluntarily leaving their jobs has returned closer to prepandemic levels, suggesting the tight labor market has eased a bit.
At the same time, steady hiring and brisk wage gains could sustain higher inflation. The Fed's preferred inflation gauge, the personal-consumption expenditures price index, rose 4.2% in March from a year earlier. That was down from the previous month's 5.1% increase. Core prices, which exclude volatile food and energy prices, rose 4.6% in March. The Fed targets 2% inflation over time.
The housing market -- one of the sectors hardest hit by last year's rate increases -- has seen some signs of improvement, illustrating how difficult it has been so far for the Fed to slow economic activity.
Overall, employers added nearly 345,000 jobs a month on average in the first quarter.
Officials have signaled growing divergence over the policy outlook recently, with some urging greater caution about raising rates given the lagged effects of the banking stress and the Fed's earlier increases. Others are more worried about stopping prematurely only to see economic activity and inflation remain strong.
Ahead of the Fed meeting, analysts were heavily focused on any fine-tuning of the statement language because the overall direction of monetary policy -- and not just the decision to raise rates at any particular meeting -- influences asset prices and broader financial conditions.
The Fed and many investors have sometimes been at odds during the past nine months over how high rates may need to rise and how long rates will have to stay at those higher levels to ensure inflation comes down. Investors have often anticipated a speedier decline in inflation and rates, in part because they expect rate increases to tip the economy into recession.
Those expectations have led long-term bond yields to decline, potentially making it harder for the Fed to restrain the economy with higher short-term rates.
Fed Chair Jerome Powell is set to answer questions from reporters at a 2:30 p.m. news conference. "The chair will have his work cut out for him because when the chair will say 'pause,' the markets may hear 'done.' And if he says it again, they may hear 'rate cuts,'" Richard Clarida, who served as Fed vice chair from 2018 until January 2022, said on Tuesday.
(END) Dow Jones Newswires
May 03, 2023 14:04 ET (18:04 GMT)
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