The Federal Reserve is set to deliver a quarter-point rate hike on Wednesday in what would be its 10th straight increase in just over a year, as pressure builds on the US central bank to call time on its aggressive monetary tightening campaign.
At the end of its two-day meeting, the Federal Open Market Committee is expected to raise its benchmark policy rate to a new target range of 5-5.25 percent, the highest level since mid-2007.
The meeting comes at a difficult moment for the US economy and financial system as mid-sized lenders continue to be squeezed following a series of bank failures.
First Republic on Monday became the third bank to be seized by US regulators in the past two months, with the Federal Deposit Insurance Corporation brokering a hasty takeover of JPMorgan. It followed emergency measures taken by authorities in March, just days before the last Fed meeting, to stem contagion following the implosion of Silicon Valley Bank and Signature Bank.
Officials on Wednesday will face the challenge of balancing a potential credit crunch stemming from the banking crisis against the fact that inflation remains stubbornly high and price pressures are only gradually moderating.
Meanwhile, the Fed is under increasing political pressure. In a letter on Tuesday, 1[ads1]0 Democratic lawmakers asked Jay Powell, the Fed chairman, to refrain from further rate hikes, warning that more hikes could “trigger a recession, throw millions out of work and crush small businesses.”
Fed policymakers are not expected to block themselves by ruling out further rate hikes. However, most economists believe Wednesday’s hike will be the last in this cycle, especially after the Fed’s own staff buzzed about the outlook and began predicting a recession this year.
In March, the FOMC signaled that “some further policy tightening may be appropriate,” easing guidance that had been in place since March 2022, when the central bank said “ongoing increases” were needed.
Most Fed watchers expect the Fed to stick with its latest language or make modest changes.
Others believe the Fed may repeat phrasing last used at the end of its tightening campaign in 2006, when it said “the extent and timing of further tightening . . . will depend on developments in the outlook for both inflation and economic growth”.