Fed Raises Benchmark Interest Rate to a 16-Year High

But the next move could be a cut
By Rob Quinn,  Newser Staff
Posted May 3, 2023 1:10 PM CDT
Updated May 3, 2023 2:13 PM CDT
Fed Raises Benchmark Interest Rate a 10th Time
Federal Reserve Chairman Jerome Powell arrives to speak during a news conference in Washington, Wednesday, May 3, 2023, following the Federal Open Market Committee meeting.   (AP Photo/Carolyn Kaster)

This story has been updated with remarks from Fed officials. The Federal Reserve hiked its benchmark interest rate for the 10th time on Wednesday in what analysts predict could be the last rise for now in the central bank's fight against inflation. The Fed signaled that a pause could be possible after 14 months of rate hikes, the AP reports. The quarter-point rise announced Wednesday brings the rate to a range of 5% to 5.25%, the highest in 16 years.

In a break from previous policy statements, Fed officials did not say further rate hikes might be appropriate, the Wall Street Journal reports. Instead, they said they would monitor developments to determine "the extent to which additional policy firming may be appropriate to return inflation to 2% over time." They suggested future changes could be decreases, not increases, per the Journal.

Inflation dropped from 9.1% in June to 5% in March, but it is still far above the Fed's target. "Inflation pressures continue to run high, and the process of getting getting inflation back down to 2% has a long way to go," Fed Chair Jerome Powell said Wednesday. Some analysts had argued for the Fed to declare a pause in rate hikes, noting that economic growth fell to 1.1% year-on-year in the first quarter of this year and another rise could push the economy into recession. "A decline in economic growth to 1.1% shows it is time for the Fed to pause,” Clinton administration economic adviser Robert J. Shapiro said before the decision, per the Guardian.

story continues below

"There is a significant lag between interest rate rises being imposed and them taking effect, and so we know there is more pain for the economy to come even without further rate rises," Shapiro said. Elsa Lignos at RBC Capital Markets, however, argued that a "shock pause" would "do more harm than good" by unsettling markets with a surprise move, the New York Times reports. (Read more Federal Reserve stories.)

Get breaking news in your inbox.
What you need to know, as soon as we know it.
Sign up
We use cookies. By Clicking "OK" or any content on this site, you agree to allow cookies to be placed. Read more in our privacy policy.
Get the news faster.
Tap to install our app.
Install the Newser News app
in two easy steps:
1. Tap in your navigation bar.
2. Tap to Add to Home Screen.