Financial Markets Research Brief
Fed Shifts to a Reactive Stance;
Greater Lending Consistency May Be Coming
Federal funds rate pushed to 16-year high. On May 3, the Federal Open Market Committee lifted the overnight lending rate to a lower bound of 5.0 percent, a 25-basis-point shift. The FOMC has raised the federal funds rate a combined 75 basis points so far in 2023, just one-sixth of last year’s total shift. Going forward, the path is more open. Chairman Powell stated that the FOMC will take a meeting-by-meeting approach to any further monetary policy tightening. If inflation pressures continue to ease and economic growth tapers, the Fed may elect to keep rates flat for the near future. Part of this expectation is tied to recent disruptions in the banking sector, which are expected to have their own cooling influence.