The Federal Reserve raised a key interest rate Wednesday by a quarter percentage point, the 10th increase in just over a year that is hitting consumers with higher costs for home mortgages, auto loans and credit card balances.
But Fed Chairman Jerome H. Powell said central bank officials no longer are saying they anticipate more rate hikes this year, calling the change meaningful.
Mr. Powell also said it’s more likely than not the U.S. will avoid a recession, although he didn’t rule it out.
“It’s possible that we’ll have what would be a mild recession,” he said.
The gross domestic product grew at just a 1.1% annualized rate in the first quarter. Layoffs rose to 1.8 million in March, up from 1.6 million in February.
In an unanimous vote Wednesday, the Fed’s Open Market Committee raised its borrowing rate to a range of 5%-5.25%, the highest in 16 years. Since March 2022, the Fed has raised its rate by 5 percentage points to curb inflation that peaked in June 2022 at 9.1%.
Stocks fell on the announcement. The Dow Jones Industrial Average lost 270 points, or 0.8%, to close at 33,414, while the broader S&P 500 Index fell 29 points, or 0.7%, to close at 4,091.
The annual inflation rate in March was 5%, which is still more than twice the Fed’s target level of 2%.
“Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go,” Mr. Powell said.
The Fed’s move comes on the heels of another big bank failure, increasing layoffs and rising concerns about a possible recession. Regulators on Monday seized San Francisco-based First Republic Bank, the nation’s 14th largest, and worked out a deal for JPMorgan Chase to absorb most of its operations.
Mr. Powell said conditions in the banking sector “have broadly improved” since March, when Silicon Valley Bank and Signature Bank failed. Banks have been hit by the rapidly rising interest rates, which has caused some customers to withdraw deposits in search of higher returns.
Because of rising interest rates, mortgage rates have more than doubled in the past year, prompting a slump in the housing market. Mr. Powell said there’s some evidence the bank troubles are leading to tighter credit conditions, which could restrict hiring.
Even amid the inflation problems and banking turmoil, the labor market has been tight. The unemployment rate is 3.5%.
A group of Democratic lawmakers had urged Mr. Powell this week to cut rates and “avoid engineering a recession.”
The Fed’s next policy meeting is June 13-14.
• Dave Boyer can be reached at dboyer@washingtontimes.com.
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