In a move that marks the tenth consecutive interest rate hike, the Federal Reserve today raised the key federal funds rate, bringing it to a 16-year high. The new target range is set at 5 to 5.25%, as the central bank continues its mission to achieve maximum employment and a 2% inflation rate over the longer run.

The U.S. economy experienced modest expansion in the first quarter, with robust job gains and a persistently low unemployment rate. Inflation, while still elevated, has slowed down to 5% from 6% YoY in March, aligning with market expectations.

The Fed's statement sought to reassure depositors that the U.S. banking system is sound and resilient, but also acknowledged that tighter credit conditions for households and businesses may pose challenges to economic activity, hiring, and inflation. This follows the collapses of Silicon Valley Bank and Signature Bank, as well as the federal government's seizure and subsequent sale of First Republic Bank to JP Morgan Chase.

The Federal Reserve emphasized its strong commitment to returning inflation to its 2% objective, stating, "The Committee will closely monitor incoming information and assess the implications for monetary policy." This includes considering the cumulative tightening of monetary policy, the lags with which it affects economic activity and inflation, and various economic and financial developments.

As the central bank continues to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities, it remains prepared to adjust its monetary policy stance if necessary.

As always, if you have any questions about today’s Market Update, you can call us at 604-643-0101 or email cashgroup@cgf.com