The Federal Reserve on Wednesday raised interest rates for the 10th time in just over a year — but backed away from previous statements that suggested future increases.
The Fed’s latest move, announced at the end of its two-day policy meeting on Wednesday, brings the central bank’s benchmark interest rate to a level between 5 and 5.25 percent, the highest level in 16 years. Now, the Fed must wait to see if its policies can successfully tame inflation and slow the economy — or if policymakers have already gone too far.
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Wednesday’s announcement excluded language in previous statements that had said raising interest rates further “might be appropriate.” Policymakers spent Tuesday and Wednesday debating whether this May hike gets interest rates high enough to pause the Fed’s aggressive campaign against inflation and give time for their policies to work through the economy, or if they have more work to do to raise borrowing costs and curb demand for all kinds of investments, from mortgages to car loans to business hiring.
Complicating the Fed’s decision were the ongoing repercussions from this spring’s banking crisis. Fed officials have said the fallout from the failures of Silicon Valley Bank and Signature Bank will slow the economy. Tremors in the financial system have made banks more reluctant to loan money, curbing demand in a way that mimics an interest rate hike. But policymakers had to debate — and now must explain to the public — just how significant that broader slowdown will be.
3:36 PM: Aspiring saloon singer Powell did it his way
Who knew the chair of the Federal Reserve was a Frank Sinatra fan?
Asked Wednesday if he had any regrets about his handling of the crisis in regional banks, Powell quipped, “I’ve had a few.”
For observers of a certain vintage, the reference recalled the Sinatra classic “My Way,” which includes the lyrics:
“Regrets, I’ve had a few
But then again too few to mention.”
By: David J. Lynch
3:30 PM: Economy still ‘likely’ to avoid recession, Powell says
© Seth Wenig/AP
The New York Stock Exchange on Wednesday.
Economists on Wall Street and at the Fed are largely predicting a mild recession later this year. But Fed Chair Jerome H. Powell pushed back against those forecasts on Wednesday, saying it’s “more likely” the economy narrowly avoids a downturn.
The reason for his optimism: An incredibly resilient job market that so far has been able to withstand aggressive interest-rate hikes.
“We’ve raised rates by 5 percentage points in 14 months and the unemployment rate is 3.5 percent — pretty much where it was, even lower than it was when we started,” Powell said. “It wasn’t supposed to be possible for job openings to decline by as much as they’ve declined with our unemployment going up. Well, that’s what we’ve seen.”
Still, he said, there are “no promises,” and he didn’t completely rule out the possibility of an economic slump. “It’s possible that we will have what I hope would be a mild recession,” Powell said.
By: Abha Bhattarai
3:28 PM: Analysis from Jacob Bogage, Business reporter
Federal Reserve Chair Jerome H. Powell said that the sale of First Republic Bank to JPMorgan Chase “draws a line” under the financial-sector crisis and underscored banking stability.
“Conditions in that sector have broadly improved since early March,” he said, referring to the failures of Silicon Valley and Signature banks, “and the U.S. banking system is strong and resilient.”
3:21 PM: Federal Reserve staff’s warning of risks to banks didn’t get through
© Al Drago/Bloomberg News
Federal Reserve Chair Jerome H. Powell during a news conference Wednesday.
Less than one month before the failure of Silicon Valley Bank, Federal Reserve experts warned the central bank’s governors that their efforts to raise interest rates was hurting many banks.
On Feb. 14, Fed Chair Jerome H. Powell and the other Fed governors received a staff briefing titled “Impact of Rising Rates on Certain Banks and Supervisory Approach,” which described the effect that higher rates were having on bank balance sheets.
During the pandemic, banks were flooded with more deposits than they could profitably lend into a stagnant economy. Many bankers instead invested excess deposits in low-rate government securities.
As interest rates rose, those older bonds lost value, leaving banks burdened by unrecognized financial losses.
Silicon Valley Bank “was specifically identified as an example of a large firm with ‘significant safety and soundness risks,’” concluded Michael Barr, the Fed’s vice chair for supervision.
Silicon Valley Bank’s risk model flashed red. So its executives changed it.
But the briefing made little impression on the Fed chairman.
“There was nothing in it about the risk of a bank run,” Powell said Wednesday. “It wasn’t presented as an urgent or alarming situation.”
Powell described the session as “informational” rather than a call to action. “I didn’t remember it very well,” he said.
The message from the Fed’s bank supervisors, Powell said, was, “We’re on the case.”
By: David J. Lynch
3:13 PM: GOP Sen. Rick Scott blasts Powell for ‘pathetic job’
Sen. Rick Scott (R-Fla.) on March 22 in Washington. (Jabin Botsford/The Washington Post)
Republican Sen. Rick Scott (Fla.) did not mince words Wednesday when asked about Federal Reserve Chair Jerome H. Powell.
“I think Jay Powell has done a pathetic job,” Scott said at the end of a news conference about the debt ceiling, asked about the recent interest rate increase.
Scott took issue with Powell’s approach to rising inflation, arguing the Fed had been too slow in reacting to rising prices and seemingly wrong in its approach to raising interest rates. And he faulted the chairman for failing to take action in the weeks before the Silicon Valley Bank collapse, which required a federal rescue and rattled the financial system.
“Poor families are being hurt because of his foolishness,” Scott said. “We’ve got banks that have gone under. What was he doing? … I think that what he’s doing is hurting the economy.”
By: Tony Romm
2:59 PM: Powell says no final decision made on whether to end hikes
The Federal Reserve likes to make its messages clear. And yet a statement released at the end of the central bank’s two-day policy meeting, plus comments from Fed Chair Jerome H. Powell, suggested that the Fed was possibly done raising rates — but that no final decisions had been made.
“A decision on a pause was not made today,” Powell said, adding that all Fed decisions are made meeting by meeting. But he did point to a noticeable change in Fed guidance, a closely studied document that had previously said policymakers expected “some additional policy firming may be appropriate.”
That line was removed on Wednesday, suggesting no further hikes.
Still, Fed officials said they would react to changes in the economy if need be, and that the central bank would pay attention to the cumulative toll of rate hikes, lags that come with monetary policy and any other shifts “in determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time.”
The Fed’s benchmark interest rate now sits at a level between 5 and 5.25 percent. The last time policymakers released a crop of economic projections, in March, that was the level where they expected interest rates to hit before officials opted for a pause.
By: Rachel Siegel
2:55 PM: Fed cannot protect U.S. economy from debt ceiling default, Powell says
Federal Reserve Chair Jerome H. Powell warned that the central bank cannot insulate the U.S. economy from a federal default, and he said it was “essential” that Congress raise the nation’s debt limit.
Speaking to reporters Wednesday after the latest Fed meeting, Powell said a default would put the U.S. economy in “uncharted territory” and cautioned of “adverse” effects.
Lawmakers have until June 1 to raise the debt ceiling, Treasury Secretary Janet L. Yellen told Congress on Monday.
“No one should assume that the Fed can protect the economy from the potential short- and long-term effects of a failure to pay our bills on time,” Powell said. “It would be so uncertain that it’s just as important that we never get to a place where we’re actually talking about or even having a situation where the U.S. government is not paying its bills.”
By: Jacob Bogage
2:49 PM: Powell says conditions improving in U.S. banking industry
Fed Chair Jerome H. Powell didn’t waste any time in addressing the recent failures of three midsize banks, opening his news conference Wednesday by saying — again — that the U.S. banking system remained “sound and resilient.”
Powell said conditions in the banking sector have “broadly improved” in recent weeks, without discussing the early Monday acquisition of First Republic Bank by JPMorgan, the nation’s largest bank.
“We’re committed to learning the right lessons from this episode” to prevent a repeat occurrence, Powell said.
He noted that Fed Vice Chair Michael Barr had released his review of the Fed’s role in supervising Silicon Valley Bank, the highflying institution that abruptly collapsed March 10.
Barr concluded that the California bank’s collapse reflected “a textbook case of mismanagement by the bank,” but he also said Fed officials were guilty of failures of regulation and supervision.
Barr’s “findings underscore the need to address our rules and supervisory practices,” Powell said.
By: David J. Lynch
2:40 PM: As Fed raises rates, Senate Republicans double down in debt ceiling stalemate
While the Federal Reserve announced its latest interest rate increase, Senate Republicans on Wednesday focused their attention on another matter of great importance to the economy: the debt ceiling.
GOP senators doubled down in support of their House colleagues, who defied President Biden last month in adopting a bill that couples an increase in the debt limit with massive spending cuts and other policies.
“We are all here today to express our support for the good work done by the House of Representatives and indicate there isn’t going to be a debt-limit increase absent the president sitting down and negotiating spending reforms with Speaker McCarthy and his team,” said Sen. John Thune of South Dakota, the top vote counter for Senate Republicans.
“We will support whatever the speaker negotiates,” added Sen. John Cornyn of Texas, as he joined with other Republicans in attacking Biden for not negotiating.
For now, the president is set to convene with McCarthy and other congressional leaders at the White House next week, as the debt ceiling deadline fast approaches, raising the prospects of default as soon as June 1. Biden has maintained that he is not willing to haggle over the country’s credit because a misstep on Capitol Hill could tip the fragile U.S. economy into a recession.
Instead, the president has called for increasing the debt ceiling without conditions. But such a resolution is not possible unless Republicans supply their votes, which GOP lawmakers said Wednesday they aren’t willing to provide.
By: Tony Romm
2:31 PM: Stocks edge slightly upward after Fed announcement
Markets rose slightly on news of the Federal Reserve’s decision to increase interest rates by a quarter-point.
The Dow Jones industrial average gained 0.08 percent in the minutes after the announcement. The S&P 500 grew by 0.31 percent, and the tech-heavy Nasdaq climbed by 0.63 percent.
The CBOE VIX index, known as Wall Street’s “fear gauge,” fell by 0.62 percent, reflecting a smoother trading atmosphere and less market volatility.
The central bank signaled that Wednesday’s rate hike — the 10th straight since March 2022 — may be the last for the foreseeable future.
That’s a welcome sign for tech stocks and riskier assets, said Dan Ives, managing director at Wedbush Securities, which are more vulnerable to higher borrowing costs.
It is also a boon to regional banks with significant holdings of assets that took heavy losses related to the rate cycle and contributed to the collapse of Silicon Valley, Signature and, most recently, First Republic banks.
Some economists worried that further rate hikes could expose more vulnerabilities in the sector.
“With cracks in the financial system, this feels like the Fed waving the white flag on rate increases,” Ives said. “I think First Republic, Signature, Silicon Valley, it’s created massive pressure that banks are seeing with this massive rate hike cycle. The smoke signals are telling the Fed to end the hike cycle. I feel like without the banking crisis that we’ve seen among regional banks, the Fed is likely more hawkish here.”
By: Jacob Bogage
2:30 PM: Analysis from Jacob Bogage, Business reporter
The 11 members of the Federal Open Market Committee voted unanimously to approve the rate increase. One seat is vacant on the committee since Lael Brainard, formerly the vice chair, left in February to serve as director of President Biden’s National Economic Council.
2:05 PM: Fed says it will keep close eye on credit conditions
“Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” according to a Fed statement after the rate hike announcement. “The extent of these effects remains uncertain.”
Still, the Fed said it would react to changes in the economy if need be, and that it would pay attention to the cumulative toll of interest rate hikes, lags that come with monetary policy and any other shifts “in determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time.”
By: Rachel Siegel
2:00 PM: Fed raises rates by 0.25 percentage points, signals no more hikes for now
The Federal Reserve raised interest rates for the 10th time in just over a year — and signaled that it will stop hoisting borrowing costs as the economy slows and fears of a recession grow.
The Fed’s latest move, announced at the end of its two-day policy meeting Wednesday, brings the central bank’s benchmark interest rate to a level between 5 and 5.25 percent. Now the Fed must wait to see whether its policies can successfully tame inflation and slow the economy — or if policymakers have already gone too far.
By: Rachel Siegel
1:50 PM: Three of the four largest-ever bank failures have happened since March
© Provided by The Washington Post
The recent failures of Silicon Valley, Signature and First Republic banks mark three of the worst collapses of federally insured banks. Silicon Valley and First Republic in particular faced trouble as interest rates began to rise last year. While the Federal Reserve has risen rates to curb persistent inflation, cracks in the banking sector poses a dilemma for the central bank.
You can read the full story here.
By: Luis Melgar and Hamza Shaban
1:34 PM: Job market continues gradual slowdown
The labor market keeps softening, though for now it remains an area of strength for the overall economy.
Job openings fell to 9.6 million in March, the lowest number in two years and a sign that the Federal Reserve’s interest rate hikes are dampening employer demand for workers, according to a Labor Department report released Tuesday. Layoffs, which have been historically low, jumped to 1.8 million in March, signaling that employers are reacting to tightening financial conditions.
The Labor Department’s next jobs report, scheduled for release Friday, will include unemployment and jobs data from April and give Fed officials a clearer snapshot of where the economy is headed.
By: Lauren Kaori Gurley
1:30 PM: Liberals in Congress tell Fed to stop interest rate hikes
© Jabin Botsford/The Washington Post
Sen. Elizabeth Warren (D-Mass.) appears at a Senate Banking Committee hearing on Capitol Hill in Washington on March 7.
Ten congressional liberals, led by Sen. Elizabeth Warren (D-Mass.), called on Federal Reserve Chair Jerome H. Powell to halt the central bank’s plans to raise interest rates, writing in a letter Monday that higher borrowing costs could force millions of Americans out of work.
Powell and the Fed’s board of governors have increased rates nine times since March 2022 in an attempt to tame persistent inflation. They are expected to boost rates again Wednesday by another 0.25 percent.
But Warren and her colleagues argue that higher rates could cause more uncertainty in the banking system. and that more expensive borrowing that could force businesses to tighten their belts and shed workers.
“While the Fed should remain flexible to incoming data as it assesses the economy’s progress toward achieving lower inflation, the evidence to date suggests that progress can continue to be made without slamming the brakes on the economy and costing millions of Americans their jobs,” the letter states.
Warren was joined by Sens. Sheldon Whitehouse (D-R.I.) and Bernie Sanders (I-Vt.), and Reps. Brendan F. Boyle (D-Pa.), Pramila Jayapal (D-Wash.), Jerrold Nadler (D-N.Y.), Jamaal Bowman (D-N.Y.), Jan Schakowsky (D-Ill.), Katie Porter (D-Calif.), and Jesus “Chuy” Garcia (D-Ill.).
By: Jacob Bogage
1:30 PM: Advice: Four money rules when financial news is making you nervous
The Federal Reserve has been raising interest rates to beat back inflation. That, in turn, is making your credit card debt more expensive. But if the Fed doesn’t tame inflation, consumer goods and services will stay too expensive.
If you’re invested in the stock market, your retirement savings may have dwindled because of a host of economic and global issues, including a war in Ukraine.
And if that weren’t enough, the recent failures of California-based Silicon Valley Bank and New York-based Signature Bank have rattled the financial services industry. Then Credit Suisse disclosed “material weakness” in its financial reporting, causing its stock to tumble and creating more concern about the banking sector.
But if you act on your fears rather than the reality of your situation, you could make things worse. Follow these four rules when financial events are making you panic about your money.
By: Michelle Singletary
1:29 PM: Regional banks claw back some gains after days of sell-offs
After days in the red, regional banks regained some ground Wednesday as the Federal Reserve prepared to announce what observers expect will be another interest rate hike.
Los Angeles-based PacWest Bancorp gained 6.7 percent in midday trading. Western Alliance Bancorp in Phoenix rose 3.43 percent, and Zions Bancorp of Salt Lake City climbed 2.51 percent. All three remain lower for the week, after the announcement that federal regulators had seized First Republic Bank and sold most of its assets and deposits to JPMorgan Chase.
The CBOE VIX index, known as Wall Street’s “fear gauge,” grew 2.36 percent, reflecting investors’ hesitancy and expectation for more market volatility.
Regional banks have been on a steady downward trend since the collapse of Silicon Valley and Signature banks in March. They plunged further this week when JPMorgan Chase stepped in to rescue First Republic Bank.
The sell-offs prompted larger fears in the banking sector that depositors could pull their money from smaller institutions more vulnerable to higher interest rates in favor of larger banks.
JPMorgan was already the biggest U.S. bank, with $3.2 trillion in assets before it added roughly $200 billion in loans and securities from First Republic.
By: Jacob Bogage