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   In a unanimous decision Wednesday, June 14, Federal Reserve Officials agreed to hold the benchmark federal-funds rate steady at a range between 5% and 5.25% after a streak of 10 consecutive increases in the fastest rate rise since the 1980’s. Last week’s economic projections strongly indicated that officials are leaning toward reducing interest rate hikes rather than halting them altogether. They are now cautious about raising interest rates with concerns of a delayed effect from their previous rapid rate increases from last year and the recent strains in the banking system. As a result, they are currently trying to strike a balance between high inflation and increasing interest rates with the possibility that there will be a sharper economic slowdown in the coming year.    While the decision has been made to pause interest rates for the moment, Federal Reserve Chair Jerome Powell hinted that his default position for now is to raise rates at the Fed’s July 25-26 meeting. Powell has said that he favors spacing out the Fed’s rate increases given how close they were to their final destination for rates. While 12 of the 18 Federal Reserve Officials still believe they will need to increase rates to a range between 5.5% and 5.75%. This would require two additional quarter-point increases at any of the four meetings this year, lifting rates to their highest point in 22 years.

    A quarter percentage point increase in interest rates was approved by the Federal Reserve last Wednesday, bringing the benchmark federal funds rate to a range between 5% and 5.25%. With this decision, the Federal Open Market Committee delivered its tenth consecutive rate increase aimed at battling inflation, bringing the new benchmark federal-funds rate to a 16-year high, the fastest rate increase cycle in 40 years. In a new statement issued Wednesday, officials stated they would monitor economic and financial market developments as well as the effects of their earlier rate increases to assess whether additional policy firming may be necessary over time to return inflation to the 2% target. In the past few months, officials have been looking for clear signs of an economic slowdown to warrant ending rate hikes. Despite some signs of cooling, such as muted consumer spending and factory activity, steady hiring and brisk wage gains could sustain an elevated level of inflation. As a result of this, the Fed may change their strategy, and may need to see stronger signs of economic growth, employment, and inflation before continuing to raise rates.      Many economists and Fed officials urged greater caution in raising interest rates ahead of Wednesday’s meeting due to the lingering effects of banking stress and previous Fed rate increases. The belief was that this could expose additional banking vulnerabilities similar to the recent rescue of First Republic Bank by JPMorgan Chase. Others believed that the Fed would conclude increasing interest rates early if economic activity and inflation remain high, possibly creating a dilemma for the central banks between managing inflation and maintaining financial stability.    Source: WSJ

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