Fed pauses, but signals more rate hikes ahead

The Federal Reserve kept interest rates unchanged following the two-day Federal Open Market Committee meeting, as expected, snapping a string of 10 consecutive rate hikes. The post-meeting statement said, “Holding the target (interest rate) range steady at this meeting allows the committee to assess additional information and its implications for monetary policy.”

While the Fed chose to pause this month, the updated economic projections from Fed officials signaled rates will likely rise another 50 basis points by the end of this year. The median so-called “dot plot” projections show the benchmark lending rate rising to a range of 5.50% to $5.75% by the end of the year, up from the current 5.00% to 5.25%, with half of the 18 Fed officials projecting rates at that level. Three see rates rising even higher, with one above 6.00%. Only two of the 18 Fed officials expect rates to hold at the current level, with four projecting a 25-basis-point increase.

In his post-meeting press conference, Chair Jerome Powell noted the Fed has “covered a lot of ground and the full effects of our tightening have yet to be felt.” As a result, “it makes sense to go at a more moderate pace. When we see inflation really flattening out and starting to soften, I think we'll know that it’s working.” Powell also noted the labor market remains very tight and the Fed will want to see a gradual slowdown in wage growth as part of the process of taming inflation.