Fed will likely hike key US interest rate before end of 2023
ALBAWABA – The United States (US) Federal Reserve Board (Fed) concluded their two-day policy meeting Wednesday, and announced that the Fed will pin US interest rates for now, but may be forced to hike rates moving forward.
Two more US interest rate hikes may be necessary this year, possibly as soon as July, said Fed Chair Jerome Powell, speaking to reporters on Wednesday.
Powell warned that borrowing costs will rise in the months to come, thanks to surprisingly persistent inflation and labor market strength, news agencies reported.
Since March 2022, the Fed hiked the key US interest rate by nearly 5 percent.
“The committee thought overall that it was appropriate to moderate the pace, if only slightly,” Powell said. “That gives us more information to make decisions. We may try to make better decisions. It allows the economy a little more time to adapt as we make our decisions going forward.”
Fed officials left US interest rates in the range of 5 to 5.25 percent.
This is the first breather in a 15-month hiking campaign that included four significant 75-basis-point increases last year.
Pausing rate hikes while at the same time signaling further potential increases “gives them maximum flexibility,” James Knightley, chief international economist at ING, told Bloomberg.
“They have laid the groundwork for a hike if the data remains hot, but can easily reverse course if it’s softer,” he said.
Meanwhile, many investors believe that any such sole measure as an additional 50 basis point rate hike will probably be insufficient, according to Reuters.
A rally in US stocks that has seen the S&P 500 rise 24 percent from last year’s lows indicates a persistently resilient economy, the news agency underscored.
Concerns are growing over an impending liquidity crunch in the market, as well as the banks, who have to deal with a weakening commercial real estate sector.
The newly passed debt deal, which suspended the US borrowing cap, sprung a series of bond issuance by the Treasury Department. Given the high interest rates, this could lead to a decline in liquidity in the market, experts have warned.
