May 03, 2023
FED: “Rise in line that could represent a pause moving forward”
In line with what was expected by the market and unanimously, the FED increased the reference rate by 25bp to 5 – 5.25%. This movement represented the tenth increase since March 2022 and implied its highest level since September 2007.
Within the statement, it stood out that the Federal Open Market Committee (FOMC) reiterated that it “will closely monitor incoming information and evaluate the implications for the monetary policy.” This phrase contrasted with the words expressed in the statement in March, because it omitted a line that mentioned that the Committee “anticipates that it may be appropriate to reaffirm some additional policies (meaning, more increases in the reference rate).” This message in a certain way could insinuate a possible pause in the most aggressive cycle of interest rate rise since 1980. Under this context, the Committee expressed that it remains very attentive to inflation risks, for which reason it is committed to returning it to its 2 percent goal.
Additionally, the statement pointed towards a stance which is more dependent on emerging data, stating that “in assessing the appropriate stance for monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook.” Therefore, it would be prepared to adjust the monetary policy stance accordingly if risks arise that could prevent achieving the goals. The assessments will take into account a wide range of information, including the readings about labor market conditions, inflationary pressures and inflation expectations, and local and international financial developments.
Finally, in the middle of the turbulence that the banking system is experiencing, the statement once again highlighted that the sector is solid and resilient, although tighter credit conditions are likely to weigh on economic activity, employment, and inflation, where the extent of these effects remains uncertain.
The markets took the statement positively, as well as Jerome Powell’s statements during his press conference, emphasizing that his forecast is for modest growth and not for a recession. Also, he confirmed that the process of reducing inflation has a long way to go and that the banking conditions have “greatly improved” since March.