The Federal Reserve announced Wednesday that it was raising short-term borrowing rates another 0.25%, bringing the rates to a 16-year high.
The Fed’s 10th consecutive rate increase arrives less than a week after fresh government data showed that U.S. economic growth slowed over the first three months of this year.
“Economic activity expanded at a modest pace in the first quarter. Job gains have been robust recently, and the unemployment rate has remained low. Inflation remains elevated,” said the Federal Reserve in a statement.
The rate hike brings the Fed’s target rate within a range of 5% and 5.25%, with the Fed continuing its series of rate increases. Most economists anticipated a quarter-point interest rate hike to bring inflation down, but many expect this will be the last rate increase in the series.
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While inflation remained elevated, higher borrowing costs for households and businesses “are likely to weigh on economic activity, hiring, and inflation,” the central bank’s statement said, adding that the extent of these effects “remains uncertain.”
As of Wednesday morning, markets were predicting almost 100% odds that the Fed would hike rates by a quarter-point, according to CNBC.
With the latest rate increase, the Fed funds rate is now at its highest level since 2007, prior to the 2008 financial crisis.
“What’s most important is how they convey the potential for a pause going forward,” Collin Martin, fixed income strategist at Charles Schwab, told CNBC. “How do they do that while also probably leaving the door open a little bit? That will be a balancing act between suggesting a pause is in the cards but still is dependent on incoming data should inflation turn higher going forward.”
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Speaking in Washington, D.C., on Wednesday, Fed Chair Jerome Powell reasserted the central bank’s commitment to cooling price increases but left open the possibility that the Fed could pause increases at its next meeting.
“Inflation pressures continue to run high,” Powell said. “The process of getting inflation back down to 2% has a long way to go.”
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