The U.S. Federal Reserve has raised its key interest rate by another 25-basis points but signaled that its monetary tightening regime is coming to an end.
In a statement accompanying the quarter of a percentage point rate increase, the U.S. central bank said that it's likely nearing the end of its interest rate hikes.
Specifically, the Fed removed language that had previously indicated it would keep raising rates at upcoming policy meetings.
The central bank also telegraphed that it expects to raise its trendsetting interest rate just one more time this year. The influential federal funds rate is currently in a range of 4.75% to 5.00%, its highest level in 16 years.
The latest interest rate increase comes weeks after several U.S. banks collapsed amid a liquidity crisis that some critics blame on higher interest rates.
In its newest policy statement, the Fed warned that the financial upheaval stemming from the collapse of both Silicon Valley Bank and Signature Bank is “likely to result in tighter credit conditions” moving forward.
Speaking to the media, Fed Chair Jerome Powell said that “The process of getting inflation back down to two per cent has a long way to go and is likely to be bumpy.”
Powell emphasized that even though the Fed is likely to stop raising interest rates soon, the central bank will probably keep rates elevated for an extended period to lower inflation to its 2% annualized target.
Analysts said that the Fed's signal that the end of rate increases is in sight was meant to soothe volatile financial markets. However, some also said that the Fed made clear that markets shouldn’t expect an interest rate cut this year.
Traders are now betting that the Fed will again raise interest rates by 25-basis points at its next policy meeting on May 3 before pausing to assess the impact on the economy.
