The Federal Reserve raised its target interest rate by a quarter of a percentage point on Wednesday, yet continued to promise “ongoing increases” in borrowing costs as part of its still unresolved battle against inflation.
“Inflation has eased somewhat but remains elevated,” the U.S. central bank said in a statement that marked an explicit acknowledgement of the progress made in lowering the pace of price increases from the 40-year highs hit last year.
Russia’s war in Ukraine, for example, was still seen as adding to “elevated global uncertainty,” the Fed said. But policymakers dropped the language of earlier statements citing the war as well as the COVID-19 pandemic as direct contributors to rising prices and omitted mention of the global health crisis for the first time since March 2020.
Still, the Fed said the U.S. economy was enjoying “modest growth” and “robust” job gains, with policymakers still “highly attentive to inflation risks.”
“The (Federal Open Market) Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time,” the Fed said.
Stocks, modestly lower ahead of the Fed rate decision, were little moved by the release of the policy statement, with the benchmark S&P 500 (.SPX) index down about 0.3% on the session.
The yield on the 2-year Treasury note , the maturity most sensitive to Fed policy expectations, rose to the day’s high, last trading up 2 basis points at about 4.22%. The U.S. dollar was little changed against a basket of major trading partner currencies.
“If you were hoping for clear signs of an upcoming pause in interest rate hikes, you were left wanting. The Federal Reserve retained the phrase ‘ongoing increases’ in their statement, leaving their options open depending on what upcoming economic data says,” said Greg McBride, chief financial analyst at Bankrate.
The decision lifted the benchmark overnight interest rate to a range between 4.50% and 4.75%, a move widely anticipated by investors and flagged by U.S. central bankers ahead of this week’s two-day policy session.
But in keeping the promise of more rate hikes to come, the Fed pushed back against investor expectations that it was ready to flag the end of the current tightening cycle as a nod to the fact that inflation has been steadily declining for six months.
The statement did indicate that any future rate increases would be in quarter-percentage-point increments, dropping a reference to the “pace” of future increases and instead referring to the “extent” of rate changes.
But those, it said, would take into account how the policy moves so far had impacted the economy, language that linked further rate increases to the evolution of upcoming economic data.
The Fed hopes it can continue nudging inflation lower to its 2% target without triggering a deep recession or causing a substantial rise in the unemployment rate from the current 3.5%, a level rarely seen in recent decades. Inflation, based on the Fed’s preferred measure, slowed to a 5% annual rate in December.
The U.S. central bank did not issue new economic projections from its policymakers on Wednesday but did reaffirm its commitment to its 2% average inflation target as part of its annual review of operating principles.
Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. EST (1930 GMT) to elaborate on the latest policy decision.