The Federal Reserve raised its key interest rate by a quarter-point to the highest level in 16 years, but also signaled that it may now pause its streak of rate hikes, which have made borrowing steadily more expensive.
Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington, Wednesday, May 3, 2023, following the Federal Open Market Committee meeting.
The Fed’s rate increases since March 2022 have more than doubled mortgage rates, elevated the costs of auto loans, credit card borrowing and business loans and heightened the risk of a recession. Home sales have plunged as a result. The Fed’s latest move, which raised its benchmark rate to roughly 5.1%, could further increase borrowing costs.
At his news conference, Powell said he believed conditions in the industry have improved since early March and that “the U.S. banking sector is sound and resilient.” At the same time, he acknowledged that “the strains that emerged in the banking sector in early March appear to be resulting in even tighter credit conditions for households and businesses.”
Even the surprisingly resilient job market, which has kept the unemployment rate near 50-year lows for months, is showing cracks. Hiring has decelerated, job postings have declined and fewer people are quitting jobs for other, typically higher-paying positions.
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