The Federal Reserve lifted interest rates by another quarter of a percentage point on Wednesday, marking the tenth straight hike as it continues its inflation fight. The central bank raised rates to a range of 5 to 5.25 percent, the highest level seen in 16 years.
But the Fed also signaled that a potential pause could be in store in the near future. “People did talk about pausing, but not so much at this meeting,” Fed Chair Jerome Powell said at a news conference. “We feel like we’re getting closer or maybe even there.”
DON'T MISS: Looks Like The Fed Is on Hold at Least Through June
CME Group's FedWatch now expects a 71% chance that the Fed will keep rates at 5% to 5.25% at its next policy meeting in June, with bets on a quarter-point rate cut in September accelerating to 46%.
In the video above, TheStreet's senior markets correspondent Martin Baccardax explained the latest market sentiment and laid out the economic data to expect ahead of the next meeting of the central bank.
Full Video Transcript Below:
MARTIN BACCARDAX: Tenth straight hike from the Federal Reserve. It was absolutely anticipated by the markets. They were assuming this was going to happen, but they also assumed it was going to be the last of the cycles. So now we have the Fed funds rate at that range of between 5 and 5.25% And the market is betting that not only have we reached the top, but very soon the Fed is going to have to reverse course and begin cutting.
Now bets on a decline in interest rates from September onwards are accelerating quickly. In fact, there's nobody that thinks the Fed isn't going to cut from September and virtually every bet from there on is for a reduction. Now, Federal Reserve chairman, Jerome Powell, told markets yesterday that cuts are not in its thinking at the moment, and they're going to have to monitor data coming in. And that, of course, puts them on an interesting course, because we have two sets of employment data and two sets of inflation data prior to the next meeting in June. So if the Fed is going to be data dependent, as it suggests, then those figures are going to be incredibly important in defining the next steps on rate hikes or indeed rate cuts from the Fed.
It's going to be even more important considering that we are seeing increased signs of a potential recession and the stresses we're seeing in the bank sector may indeed accelerate that. So there's everything to play for heading into the summer months. But from the Fed's point of view, they delivered what they said they would. They say they remain extremely sensitive with regards to inflation risks. They say inflation is too elevated at the moment for them to even consider lowering the policy rate, and they're going to try to hold the course until the end of the year. At this point, however, markets are just not buying it.
