Federal Reserve officials held off on approving an 11th rate increase on Wednesday but signaled the likelihood of a “live” policy meeting in July.
The U.S. Central Bank agreed to hold its benchmark federal funds rate steady between 5% and 5.25% while updating its Summary of Economic Projections (SEP) with two more rate hikes in 2023, a compromise that analysts say raises the probability of another increase in July.
“Holding the target range steady at this meeting allows The Committee to assess additional information and its implications for monetary policy,” read a Federal Open Market Committee (FOMC) press release.
Whether the Fed can guide the economy into a smooth or hard landing is still up in the air at this point, according to updated forecasts for the Fed’s terminal rate found in the SEP.
“The updated Summary of Economic Projections, or ‘dot plot…’ has a median projected fed funds rate of 5.6% at the end of 2023, compared to a median of 5.1% in the previous dot plot from mid-March, PNC Chief Economist Gus Faucher told The Dallas Express in an email.
While some analysts figured the U.S. central bank was done hiking rates for 2023 given the previous forecast by the SEP, it’s not so clear cut now considering Chair Powell’s less-hopeful tone during his press conference.
Some analysts claimed Powell’s language during the news conference hinted at his intention to raise rates 25 basis points at the July 25-26 policy meeting.
“We’re trying to get this right, and if you think of them [the speed and the level of rate increases] as separate variables, then I think that the ‘skip’ – I shouldn’t call it a ‘skip’ – the decision makes sense,” Powell said during the press conference.
“His tongue slip mention of a ‘skip’ indicates a rate hike is nearly guaranteed in July – and it likely explains how Powell managed to ensure a unanimous vote in favor of a hold despite diverging views among policymakers,” said Gregory Daco, chief economist at EY-Parthenon, per the WSJ.
Powell also described July’s meeting as “live,” a term typically associated with a greater chance of a rate increase, according to The Wall Street Journal.
“There is an every-other-meeting strategy, and the July decision has all but been made,” said Tim Duy, chief economist at SGH Macro Advisors, per the WSJ.
Fed Futures are currently projecting a 33% chance of a second rate pause at the July meeting and 67% of a 25-basis-point increase, a slight increase since Wednesday, according to the CME FedWatch Tool.