After a 10-meeting run of raising interest rates, the Federal Reserve on Wednesday decided to leave rates alone—but in a surprise, indicated two more hikes could come before 2023 is through, reports CNBC. The decision is being viewed as more of a "skip" than a pause and leaves the benchmark borrowing rate at about 5.1%. The next hike could come as soon as late July, reports the AP. Twelve of the central bank’s 18 policymakers envisioning the key rate ending the year at about 5.6%, according to economic forecasts they issued Wednesday. The Dow sank more than 200 points on the news.
The AP suggests the skip could be the most effective way for Powell to unite a fractious policymaking committee. It sees the 18 committee members as split between those who favor one or two more rate hikes and those who would like to leave the Fed's key rate where it is for at least a few months and see whether inflation further moderates. This group is concerned that hiking too aggressively would heighten the risk of causing a deep recession.
A government report Tuesday on inflation offered some ammunition to both camps, with overall price increases sharply slowing but some measures of underlying inflation remaining high. Consumer prices as a whole rose a modest 4% in May from 12 months earlier, the smallest such rise in more than two years and way below April's 4.9% annual increase. At the same time, the gradual but steady decline in overall inflation suggests that the Fed's rate hikes have had some success. The central bank has jacked up its key rate by a substantial 5 percentage points since March 2022.
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