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On the heels of its 10th consecutive rate hike since March 2022, the Federal Reserve hedged its bets on pausing rate adjustments.

• At the May 2023 Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) raised the federal funds rate by 25 basis points (bps).
• This marks the third straight meeting where the Fed has opted for a 25 bps adjustment and is the 10th consecutive rate hike since the central bank began its tightening cycle in March 2022.
• Fed chair Jerome Powell reinforced that the Fed is committed to reaching its 2% rate of inflation target.
• The Fed’s cumulative total increase now stands at 500 bps since March 2022 and the federal funds rate moves up to 5.00%-5.25%.

In keeping with expectations, the Fed announced its third consecutive 25 bps increase at its May 3 FOMC meeting. The rate hike is the 10th straight adjustment by the central bank since it began implementing its tightening cycle in March 2022 to combat rising inflation and moves the federal funds rate over 5% for the first time since 2007.

Indications are that the Fed is nearing the end of its tightening cycle, driven in part by the omission of a previous meeting statement that noted the committee anticipated some additional policy firming may be appropriate.

“There’s a sense that we’re much closer to the end of this [tightening cycle] than the beginning,” stated Fed chair Jerome Powell in his press conference, “but that’s going to be an ongoing assessment.” His remarks did leave the door open for more rate hikes from the Fed in the future, indicating that any action on interest rates would be data dependent.

“It is clear that the Fed is going to continue to pursue its 2% inflation target irrespective of what markets speculate about that target’s achievability,” said Raymond James Chief Economist Eugenio Alemán.

This latest rate hike brings the Fed’s cumulative total increase over the last 14 months to 500 bps and raises the federal funds rate to 5.00%-5.25%, the highest range in the past 15 years. The collective 500 bps adjustment represents the most aggressive start to a tightening cycle in the last 40 years. The pace of the hikes has slowed in 2023 to a total of 75 bps.

As the May meeting drew closer, a handful of politicians had suggested the Fed should not raise interest rates again as fears of moving into a recession loom. But, ultimately, the Fed chose to proceed with the adjustment.

“This latest FOMC release should be enough to convince markets that the Fed means what they say regarding reaching its target inflation rate,” said Alemán. “Markets will probably have to reassess their view because it is clear that the Fed is not going to start pivoting as soon as signs of economic weakness appear on the horizon.”

All expressions of opinion reflect the judgment of Raymond James’ Chief Economist and are subject to change.

There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. Investing involves risk, and you may incur a profit or loss regardless of the strategy selected.