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The Federal Reserve lifted US interest rates by 25 basis points on Wednesday, and, in a press conference shortly after the announcement, Chair Jerome Powell emphasised a change in language around future policy.
Powell said that the central bank would be ‘prepared to do more if greater monetary policy restraint is warranted’ in his post-decision conference. However, he pointed to a ‘meaningful’ change in language in the Fed’s policy statement on future rate increases.
‘In the statement from March we had a sentence that said: ’the committee anticipates that some additional policy firming may be appropriate’. That sentence is not in the statement any more, we took that out,’ Powell said.
This was a ‘meaningful’ change to the Fed’s language, he added.
Wednesday’s widely expected decision was unanimous and took the federal funds rate range to 5.00% to 5.25%. It was the central bank’s tenth hike to interest rates since March 2022.
At its last meeting, the Fed lifted interest rates by 25 basis points in another unanimous decision.
The central bank on Wednesday said the US banking system is ‘sound and resilient’ but noted that tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.
‘The extent of these effects remains uncertain,’ it added, with this tone being echoed by Powell in the subsequent press conference.
When asked on the likelihood of a mild recession in the US, however, Powell said that this own ‘most likely case’ is that the economy will continue to grow at a ‘modest’ rate this year.
Looking forward, the Federal Open Market Committee said in its statement that it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments when determining the extent to which additional policy firming may be appropriate to return inflation to 2%.
Powell reaffirmed the committee’s data-dependent and meeting-by-meeting approach in the press conference.
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