The Federal Reserve raised rates 0.25%-percentage-points to 4.75% to 5% to fight inflation at its March meeting. However, the Fed believes it is increasingly close to the top of the interest-rate cycle for 2023 with a majority of policy makers seeing one more hike coming, and no Federal Reserve policy maker forecasting rates of over 6% according the Fed’s economic projections. However, the Fed does expect to hold rates at peak levels for some time. The market agrees that we are close to peak interest rate levels, but sees rate cuts sooner than the Fed itself projects.
The outcome of this meeting was especially uncertain given recent events. The Fed chose to maintain the relative focus on inflationary risks, implicitly suggesting some degree of confidence in the U.S. banking sector. The Fed stated that “the U.S. banking system is sound and resilient.” Overall, the Fed continues to argue that getting inflation down is a painful process, but the costs of failing to successfully manage inflation are materially greater. Based on recent data, it’s likely data on the housing costs may be instrumental for path of inflation over the coming months.
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