MNI: Fed Hikes 25BPS, No Hints Of Pause For Now

The Federal Reserve raised interest rates by a quarter percentage point as expected Wednesday, repeating that it anticipates "ongoing increases" will be needed and offering little hint on the timing of a pause in tightening. 

The move took the fed funds rate to a range of 4.5% to 4.75%, the highest level in 16 years. This was the second straight meeting where the Fed slowed the pace of rate increases, down from 50 basis points in December and 75 basis points for four meetings in a row preceding that. 

"The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time," the Committee said, reaffirming its guidance from December.

The Fed made minor tweaks to its statement, acknowledging a recent easing of inflation. They also replaced the word "pace" of hikes with "extent," suggesting they are set to keep moving in 25bp increments.

Fed Chair Jerome Powell will face questions from reporters starting at 2:30 p.m. ET ranging from how much comfort he takes in the recent easing of price pressures to how long he expects rates to remain on hold once they reach their expected peak over the next couple of meetings. 

There is a major disconnect between markets, which are counting on economic weakness later this year to prompt a fresh round of rate cuts, and Fed officials who have repeatedly vowed to keep rates "higher for longer."

The Fed's December projections showed a median peak rate of 5.1% though markets have become hopeful that the central bank could stop short of that level as inflation and wage figures show signs of moderation. 

The FOMC's preferred measure of consumer inflation is off its summer peak, rising 5.0% in the year to December and 4.4% excluding food and energy prices, but is still more than double the 2% target.

Powell has said the path of wages is key to the Fed's views about how entrenched inflation has become, and there are some signs of moderation on that front, including from the latest Employment Cost Index. 

The job market remains too strong for Fed officials' comfort, with the latest data on job openings showing the ratio of vacancies to unemployed workers rebounding to near historic highs. The unemployment rate, at 3.5%, matches a 50-year low.