Powell signals latest hike may be the last: Fed raises US interest rates

The US Federal Reserve hinted last night that it was ready to halt its aggressive path of rate hikes amid a string of bank failures and a budget deadlock in Washington.

The British pound rose to an 11-month high as the world’s most powerful central bank announced another 0.25 percentage point rate hike, but softened its language on further hikes.

Asked if rates have already risen enough, Fed Chairman Jerome Powell said, “We feel like maybe we’re not too far off, maybe even at that level.”

All eyes were on the Fed, which came under intense pressure to ease its aggressive rate-hike cycle in the face of financial sector turbulence.

At the same time, the White House and Congress are at odds about raising the US government’s debt ceiling, a stalemate that could ultimately lead to the government running out of money.

But the Fed is still fighting to reduce inflation, which has fallen since its peak last year but remains well above its target of 2 percent at 5 percent.

It has raised interest rates by five full percentage points since March last year in an effort to curb the price spiral.

But last night it dropped language seen in earlier statements, in which the Fed said it “anticipates” further hikes that are appropriate, replacing it with more qualified language about what it would do next.

That softer tone is partly because the banking crisis will have a cooling effect on the economy as credit conditions tighten. Fed economists have predicted that the crisis will contribute to a “mild recession” later this year.

Powell insisted that no decision has yet been made on whether to pause or not — and that inflation is still too high — but his remarks seemed to miss the earlier insistence that there was more to do. “We are ready to do more if more monetary restraint is warranted,” he said.

But he seemed to pour cold water on the prospect that interest rates could soon be cut, citing the Fed’s view that inflation will not fall any time soon.

“In that world, it would not be appropriate to lower rates,” the chairman added.

The pound climbed to just under $1.26, its highest level since June last year.

It comes after the turmoil that began in March – spurred by the Fed’s sharp rate hikes – when three US banks collapsed, and seemed to have ended with the demise of 167-year-old Credit Suisse.

But JP Morgan’s bailout takeover of US regional lender First Republic this week sparked fears the crisis was not over.

Powell said the Fed would continue to monitor the banking system.

But he said the acquisition of First Republic was “an important step toward drawing a line under that period of severe stress.”

Andrew Hunter, deputy chief economist at Capital Economics, said: “The Fed’s new policy statement provides the clearest indication yet that today’s 25 basis point rate hike will likely be the last.

“We expect the economic weakness and a stronger-than-expected decline in core inflation to convince officials to start cutting interest rates again later this year.”

The Fed’s decision comes ahead of interest rate announcements from the European Central Bank today and the Bank of England next week.