Federal Reserve Ends June 2023 Meeting With a Pause At 5 to 5.25%; Likely to Continue Raising

Today's FOMC statement says that the Fed is holding its target Fed Funds rate at 5% to 5.25%. The decision was unanimous among voting members.

While today's action marks the first Federal Reserve meeting in this cycle to end without a rate increase, the Fed is now decidedly hawkish. The committee sees more inflation than it did previously with the 12 month change in core inflation well above 4% and core PCE inflation (exclude food and transportation) closer to 5.50%. It also sees a tight labor market with low unemployment that is causing outsized wage inflation.

Chairman Jay Powell's statement says that the Fed remains very concerned that inflation remains on the high side of expectations. In addition to eroding purchasing power, inflation is undermining confidence in the economy and the burdens of higher prices are falling more heavily on the working and middle classes. The Fed's dual mandate requires that it achieve not only its maximum employment goals but also its price stability goals.

A majority of the members now see at least two more quarter point hikes this year. At least a few see three hikes and one committee member favors a full 1% increase before the end of the year.

Chair Powell said that further rate decisions will continue to be made meeting by meeting. A Fed pause today gives it time for more information to come in, but also gives troubled banks more time to work through the balance sheet and avoid more failures like Silicon Valley Bank and First Republic.

The hawkish message about further rate hikes may cause analysts to question whether we are going to get a soft landing or whether a recession is still coming in late 2023.

Bottom line: Believe the Fed when they say rates will be higher for longer. Prepare for still higher interest rates. We'll see still more competitive savings rates and CD rates in the second half of the year. We may also see a more difficult mortgage environment.