Federal Reserve pauses rate hikes, warns this is not the end

Here are the key takeaways from the Federal Open Market Committee’s rate decision and Federal Reserve Chair Jerome Powell’s news conference Wednesday:

• Fed officials agreed to hold interest rates steady after 10 consecutive increases, as expected but surprised with a forecast of two more quarter-point hikes in its economic projections this year. Of the 18 policymakers, 12 pencilled in rates at or above the median range of 5.5% to 5.75%, showing most policymakers agree further tightening is needed to contain price pressures.

• The statement sent a strong signal that the committee will resume hikes as soon as July. Powell, in his press conference, said a large majority of the FOMC is expecting additional tightening. There were no dissents. He said the decision to pass on a hike at this meeting isn’t a “skip.” He referred to the next meeting as “live” for a rate-hike discussion and said the FOMC will make decisions “meeting by meeting.”

• Powell suggested that the Fed passed on hiking this meeting to allow additional time to examine incoming data and that as policymakers get near a terminal rate, there are two-sided risks. “We’ve covered a lot of ground, and the full effects of our tightening have yet to be felt,” the Fed chief said. Powell said the FOMC is watching credit conditions carefully and the impact on commercial real estate, where the Fed expects some losses.

• Powell repeatedly put continued emphasis on getting inflation down and said Fed officials and private economists had been surprised by how long inflation has stayed high. Powell says the committee has been surprised by the extraordinary resilience in the labour market. The FOMC upgraded its view of economic growth and the labour market but is now looking for a rise in unemployment to 4.5% next year. Even so, he said there’s still a path to a soft landing for the US economy.

• Stocks fluctuated in response to the decision and press conference. The S&P 500 was little changed as of 3:34 p.m. New York time. The yield on 10-year Treasuries was little changed at 3.81%.