![]() This group is concerned that hiking too aggressively would heighten the risk of causing a deep recession. The 18 members of the committee have appeared divided between those who favor one or two more rate hikes and those who would like to leave the Fed’s key rate where it is for at least a few months and see whether inflation further moderates. “Skipping” a rate hike at this week’s meeting might have been the most effective way for Powell to unite a fractious policymaking committee. The Fed has raised its benchmark rate by a substantial 5 percentage points since March of last year - the fastest pace of increases in 40 years. Some analysts have expressed concern that the collapse of three large banks last spring could cause nervous lenders to sharply tighten their loan qualifications. Banks have been slowing their lending - and demand for loans has fallen - as interest rates have risen. Powell and other top policymakers have also indicated that they want to assess how much a pullback in bank lending might be weakening the economy. Core inflation was 5.3% in May compared with 12 months earlier, well above the Fed’s 2% target. But excluding volatile food and energy costs, so-called core inflation remains chronically high. The central bank’s rate hikes have coincided with a steady drop in consumer inflation, from a peak of 9.1% last June to 4% as of May. Mortgage rates have surged, and average credit card rates have surpassed 20% to a record high. The Fed’s aggressive streak of rate hikes, which have made mortgages, auto loans, credit cards and business borrowing costlier, have been intended to slow spending and defeat the worst bout of inflation in four decades. The yield on the two-year Treasury note, which tends to track market expectations for future Fed actions, jumped from 4.62% to 4.77%. Immediately after the Fed's announcement, which followed its latest policy meeting, stocks sank and Treasury yields surged. And the officials expect “core” inflation, which excludes volatile food and energy prices, of 3.9% by year’s end, higher than they expected three months ago. Their updated forecasts show them predicting economic growth of 1% for 2023, an upgrade from their meager 0.4% forecast in March. ![]() One reason why the officials may be predicting additional rate hikes is that they foresee a modestly healthier economy and more persistent inflation that might require higher rates to cool. The policymakers also predicted that their benchmark rate will stay higher for longer than they envisioned three months ago. Only two envisioned keeping rates unchanged. Twelve of the 18 policymakers forecast at least two more quarter-point rate increases. The economic projections revealed a more hawkish Fed than many analysts had expected. The central bank’s 18 policymakers envision raising their key rate by an additional half-point this year, to about 5.6%, according to economic forecasts they issued Wednesday. “Holding the target rate steady at this meeting allows the committee to assess additional information and its implications” for the Fed's policies, the central bank said in a statement. But top Fed officials want to take time to more fully assess how their rate hikes have affected inflation and the economy. The Fed’s move to leave its benchmark rate at about 5.1%, its highest level in 16 years, suggests that it believes the much higher borrowing rates it’s engineered have made some progress in taming inflation. But in a surprise move, the Fed signaled that it may raise rates twice more this year, beginning as soon as next month. WASHINGTON - The Federal Reserve kept its key interest rate unchanged Wednesday after having raised it 10 straight times to combat high inflation.
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