Fed Rate Raise Sets Stage For a Pause

Federal Reserve policy makers raised the main interest rate in America to 5% and suggested they may not be finished with the nearly two-year run of increases.Additional increases “may yet be needed,” the Fed said, even as the central bank forecasts economic growth to slow from the first quarter’s 4.8% annual pace, the fastest in more than two years. The Federal Open Market Committee’s statement said the timing of moves will depend on data, giving itself room to pause if necessary.“The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information,” the statement said.Chairman Ben Bernanke is trying to contain inflation risks from higher energy costs and a tighter job market without raising rates so aggressively that he chokes economic growth. He told Congress last month that the Fed may pause even if there’s a risk of faster price increases.The Fed omitted any reference to using rates to keep growth and inflation risks balanced.“They have a bias toward tightening,” the director of economic research at Northern Trust Securities in Chicago, who formerly worked at the Fed, Paul Kasriel, said. “If we get strong data between now and June, they will go again.”The dollar rallied against the euro after the statement before weakening, while the yield on two-year Treasury notes, the most sensitive to central bank rate expectations, rose.American stocks fell, lacking a clear signal that a pause was ahead.“The way I read what they said was, ‘We do not now know what we will do'” at the next meeting, a former Atlanta Fed president who is now chairman of finance at Middle Tennessee State University in Murfreesboro, William Ford, said. “It will depend on a series of reports coming in over the next seven weeks.”The FOMC’s unanimous decision lifted the overnight lending rate between banks a 16th straight quarter point, from 4.75%, set at the last meeting on March 27-28.The statement said the Fed “will respond to changes in economic prospects as needed.”“Economic growth has been quite strong so far this year,” the statement said. “Possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.”The statement left investors guessing on whether the Fed will raise the benchmark rate a 17th time on June 29. Traders placed a 40% chance of an increase by July.

Fed Rate Raise Sets Stage For a Pause

Fed Rate Raise Sets Stage For a Pause

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