“The rate increase decision by the Fed is a clear indication that they believe that managing the risks of the recent banking sector turmoil is different than managing the risks for inflation and considered that further action on rates was necessary to continue to combat inflation,” said Raymond James Chief Economist Eugenio Alemán, Ph.D. With a strong labor market and resilient economy, it’s clear that the Fed has more work to do to reach its 2% rate of inflation target line. There had been speculation leading up to this meeting that the Fed would resist making another rate increase following a wave of volatility in the banking sector, but the central bank sided in favor of continuing its path. “The Fed’s forward guidance was more dovish as the Fed said, ‘some additional policy firming may be appropriate’ versus the previous message of the Fed ‘anticipates that ongoing increases in the target range will be appropriate.’ The main reason: The recent events in the banking sector are likely to further weigh on both growth and inflation and cause the Fed to end its tightening cycle,” noted Adam. “The important messages include that the banking system is ‘sound and resilient,’ employment is healthy, the disinflation story remains intact, and most important, the end of the tightening cycle is near.”
“Although the markets have been volatile – both up and down – in the aftermath of the decision and chairman’s press conference, overall, the messages should be viewed as reassuring to the markets,” said Raymond James Chief Investment Officer Larry Adam. One year into a tightening cycle designed to curb rising inflation, the Fed indicated that its rate hikes may soon be drawing to a close after a 25 basis point increase was announced at its March 22 FOMC meeting.
At the March 2023 Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) raised the federal funds rate by 25 basis points (bps).Indications from the central bank are that its tightening cycle is drawing to a close.
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