Fed increases rates, giving way to a pause in the tightening cycle

With what may be the final increase in interest rates in a long history and an increased focus on credit and other economic vulnerabilities, the Federal Reserve entered a new chapter in its management of the post-pandemic economic recovery.

As predicted by the financial markets, the U.S. central bank increased its benchmark overnight interest rate by a quarter of a percentage point to the 5.00%–5.25% range, but did so without using language in its policy statement that said it "anticipates" the need for additional rate hikes.

The change doesn't prevent the central bank's policy-setting committee from raising rates again when it meets in June, but Fed Chair Jerome Powell said it is now an open question whether further increases will be justified in an economy that is still dealing with high inflation, but also exhibiting signs of slowing down, with risks of a harsh credit crackdown by banks on the horizon.

Using wording similar to when it ended its tightening cycle in 2006, the Fed noted that it would take into account how the consequences of monetary policy were developing in the economy when shaping the extent to which supplementary policy firming may be necessary.

Following the release of the statement, Powell held a press conference where he stated that inflation remains the main cause for concern and that it is therefore too early to declare the rate-hike cycle to be over.