Fed Raises Rates by a Quarter Point, Hints Toward End in Sight

Highlights

• Fed officials raised interest rates by a quarter-percentage point, as expected.
• Policymakers hinted toward a possible pause on interest rate hikes up ahead.

The increase, which takes rates to a range of 5%-5.25%, marks the tenth straight rate hike by the central bank amid unruly inflation in the U.S. economy. Rates are hovering at the highest they’ve been since 2007.

However, policmakers also tipped their hand to a possible pause in further rate increases up ahead. They did away with a previous outlook from March that suggested more rate hikes were in the cards. At the time, Fed officials gave the indication that the worst of the banking crisis was over.

Central banks are now saying they’ll monitor how things unfold in the economy and the financial markets before making any decisions in their attempt to reclaim 2% inflation. Fed officials used similar language in 2006 prior to taking their foot off the gas pedal on rates.

Stocks in the Green

Stocks initially showed some relief in response to the Fed’s most recent pause. The S&P 500, Dow Jones Industrial Average and tech-heavy Nasdaq marked modest gains in response. However, after Fed Chairman Jerome Powell began speaking, all three indices slipped into the red.

With a potential pause in interest rate hikes likely, certain sectors are poised to see a bump, including housing. Any interest rate relief for homebuyers would be a welcome sign for the real estate industry and housing stocks.

In response to the Fed’s latest guidance, homebuilder stocks Lennar, D.R. Horton, and Toll Brothers were up by about 2% each.

Banking Crisis

Feds are also up against a banking crisis, with a crisis of confidence raging and bank stocks in freefall. First Republic became the latest bank to fail, with regulators stepping in and JPMorgan buying most of its assets. Investors are awaiting the next shoe to drop.

In response, multiple regional bank stocks saw their values plunge by a double-digit percentage, resulting in trading being halted in stocks like PacWest Bancorp, Western Alliance Bank and Metropolitan Bank.