The Federal Reserve is anticipated to announce a critical policy decision on Wednesday, following the collapse of another bank. Investors and economists believe this could be the central bank's final move before taking a pause. The banking system has been in turmoil since Silicon Valley Bank collapsed on March 10, with the job market maintaining some momentum alongside price increases that have shown worrisome staying power.
In March, when the Fed released its economic estimates, it hinted at a possible pause by projecting interest rates rising to a range of 5% to 5.25% in 2023. Now investors expect Fed officials will hold rates steady for several months before lowering them—potentially significantly—by year-end.
"The question now is whether policymakers think that the economy and inflation are resilient enough that they will need to adjust borrowing costs more to cool things down and lower inflation fully," said economist John Martinson.
On Wednesday, the Federal Reserve is expected to announce a 0.25% increase in its benchmark interest rate, raising the target range for the rate between 5%-5.25%, marking its highest level since September 2007.
At around 2 p.m., ET on Wednesday, Fed Chair Jay Powell will hold his press conference announcing their latest policy decision based upon data from CME Group showing nearly a staggering95% chance of an increase happening at that time.
Recent reports revealed workers' pay and benefits rose by1 .2 % during Q1 this year compared with last year's fourth quarter which saw onlya rise of just over1%. Meanwhile,a quarterly report detailing bank lending conditions should be available once all central banks finalize their meetings.
Economists predict that after approving one last quarter-point increase,the Fed may signal an imminent halt concerning aggressive rate hiking campaigns resulting from discussions held earlier throughout March over how bestto lower inflation towards meeting federal targets set at2%.
This anticipated change should provide relief to consumers and businesses struggling with higher borrowing costs, as well as ease investor concerns regarding the repercussions of a 13-month rate hike campaign.
Recent economic data paints a mixed picture of inflation rates. The Fed's preferred gauge fell to 4.2% last month from an alarming 40-year high of7%.If this trend continues over the coming weeks, Barclays has stated that another hike might be considered necessary.
In related news, the Reserve Bank of Australia raised interest rates by0 .25 percentage points,takingthe cash rate up to3 .85 %—its highest level in11 years! Inflation moderated at7% throughout March following11 consecutive rate hikes over just one year; however,RBA Governor Philip Lowe argued this figure remains excessive given their ideal target range lies between2 and3 %.
Although financial markets predict Wednesday's expected hike will likely bring about an end to this cycle,the ongoing banking crisis could spur further discussion surrounding potential pauses.New projections released by the Treasury Department indicate lawmakers have less than a month left before reaching adebt-ceiling deal or else risk having thenation default on its debt obligations.Therefore,it is still unclear whether Wall Street economists like those employed by UBS and Goldman Sachs will follow similar playbooks concerning future policy development.