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The Federal Reserve increased interest rates by a quarter of a percentage point to 4.75%-5% at its March FOMC meeting, as was broadly anticipated by the market, saying that additional firming may be appropriate.
4 Economists Tackle Fed's Latest Hike
Oliver Rust, head of product at independent inflation data aggregator Truflation, said the decision to hike interest rates by 25 basis points Wednesday is the “sweet spot” that will bring relief to markets. The expert still expects the Fed will likely need to continue hiking rates for some months yet.
Jamie Cox, managing partner at Harris Financial Group, said "the end of the rate hiking cycle is in sight.
"The Fed is trying to navigate the very narrow path between defeating inflation and destroying the economy with blunt force rate hikes, even they now know the latter is a very real risk," he added.
Former Federal Reserve Vice Chair Richard Clarida told Bloomberg the bar for the Fed to lower interest rates anytime soon is still very high.
Sam Millette, fixed income strategist for Commonwealth Financial Network, said Wednesday's hike serves as a signal the Fed remains committed to combating inflation.
Quincy Krosby, chief global strategist at LPL Financial, said markets are responding well to the expected 25-basis-point rate hike coupled with the statement that the banking system remains strong.
Summary of Economic Projections as of March 2023 – Source: Federal Reserve
More On Wednesday's Fed Comments
The Fed statement underlines that job growth has accelerated in recent months and is continuing at a healthy rate, while inflation remains elevated.
The U.S. banking sector is deemed "sound and resilient," according to the Fed, but recent events may imply tighter lending conditions, which may impact economic growth, the labor market and inflation.
During the press conference, Fed Chair Jerome Powell said the FOMC considered a pause at this meeting but the hike was supported by a strong consensus.
The extent of additional hikes will be based on incoming data, he said, adding that possible tightening in credit conditions may mean monetary tightening has less work to do.
The Fed's revised economic projections show slower GDP growth in 2023 (0.4% vs 0.5% in December) and 2024 (1.2% vs 1.6%), somewhat higher Core PCE inflation projections in 2023 (3.6% vs 3.5%) and 2024 (2.6% vs 2.5%).
The Fed's median assessment of the fed funds rate at the end of 2023 remains constant at 5.1%, but the "dot-plot" now shows the Fed funds rate at the end of 2024 at 4.3%, somewhat higher than the 4.1% projected in December.
The Fed swap market now shows the key U.S. rate dropping to 4.19% by year end and assigns a 50% probability of a 25-basis-point hike in May.
The SPDR S&P 500 ETF Trust ETF (NYSE:SPY) was volatile and down 0.19 at $398.14 at the time of publication.
Photo courtesy of the Federal Reserve.