Fed raises rates but a pause may be on the horizon

The Federal Reserve voted unanimously to raise interest rates by a quarter percentage point on Wednesday, its 10th such rate hike since March 2022. The move brought the benchmark overnight interest rate up to 5.00%–5.25%. Interest rates are now at their highest level in 16 years.

The Fed has not yet reached its goal of bringing inflation down to 2%. Nevertheless, Fed watchers saw signs that this might be the central bank’s last rate hike for a while. Dusting off their close reading skills from English 101, they studied the Fed’s latest policy statement and discovered that it no longer used the word “anticipated” when describing future hikes.

“That’s a meaningful change, that we’re no longer saying that we ‘anticipate’” additional increases, Fed chair Jerome Powell said during a press conference.

The different verbiage is “essentially telling the markets that the Fed is now on pause,” Sam Stovall, chief investment strategist at CFRA Research, told Reuters.

Powell was guardedly optimistic about the nation’s economic prospects. “The case of avoiding a recession is in my view more likely than that of having a recession,” he said.

Analyst Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, was less sanguine. “We know the economy is slowing. I think the debate is about the magnitude of whatever recession might occur,” he told the Wall Street Journal.

CNBC’s CFO Council didn’t view the rate hike as a good move, fearing that it might further dampen consumer spending. They are seeing signs of a slowed economy, such as more credit delinquencies and lower consumer demand, they told CNBC, and were concerned that the Fed wasn’t allowing enough time for the impact of the previous rate hikes to be felt before it increased rates again.

“Give it time for things to take hold,” one said. “You just don’t want to keep hiking into that environment.” —CV