STORY: The Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point and signaled it may pause further increases, giving officials time to assess the fallout from recent bank failures, wait on the resolution of a political standoff over the U.S. debt ceiling, and monitor the course of inflation.
"With today's action, we have raised interest rates by five percentage points in a little more than a year. We are seeing the effects of our policy tightening on demand in the most interest-rate sectors of the economy, particularly housing and investment. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation."
The Fed has now raised rates ten consecutive times since March 2022, pushing its benchmark overnight interest rate to the 5.00%-5.25% range.
In an overt shift, the central bank no longer said it "anticipates" further rates will be needed, only that it will watch incoming data to determine if more hikes "may be appropriate."
Fed Chair Jerome Powell said the central bank still views inflation as too high.
He also pushed back on market expectations of rate cuts this year and said they were quite unlikely to come to pass.
Risks around the recent failures of several U.S. banks and a debt limit standoff between Republicans in Congress and Democratic President Joe Biden have added to the Fed's sense of caution about trying to tighten financial conditions further. On the debt ceiling—Powell warned lawmakers to get the job done.
"I would just say this -- it's essential that the debt ceiling be raised in a timely way so that the US government can pay all of its bills when they're due. A failure to do that would be unprecedented. We'd be in uncharted territory and the consequences to the US economy would be highly uncertain and could be quite adverse." // No one should assume that the Fed can protect the economy from the potential short and long-term effects of a failure to pay our bills on time."
On Monday, U.S. Treasury Secretary Janet Yellen said the Treasury's best estimate was that a default on U.S. payment obligations due to insufficient cash could come as early as June 1, raising alarm bells on the need for urgent action.