Fed keeps rates steady, but bolsters rate-hike outlook

Investing.com -- The Federal Reserve kept rates steady on Wednesday, but lifted the outlook on its benchmark rate, signalling that its decision to skip a hike isn’t likely to turn into a pause just yet as inflation remains elevated.

The Federal Open Market Committee, the FOMC, kept its benchmark rate in a range of 5% to 5.25%.

It was the first time in more than a year that the Fed decided to keep rates steady, but the central bank signaled it wasn't done with hikes, projecting at least another interest rate increase.

The Fed increased its benchmark rate forecast to a terminal rate, or peak rate, of 5.6% at the midpoint in 2023, up from a prior forecast of 5.1% seen in March, suggesting two more hikes remain in play.

The Fed’s decision to stand pat on rates comes as FOMC members are eager to assess the impact of hikes delivered so far, and the degree of tightening in lending standards following the recent banking turmoil.

The recent data on the tightening in the banking sector haven’t been as bad as feared, but while it’s not “terrible, there's definitely been some tightening in lending standards … that will help Fed,” Eric Green, Chief Investment Officer at Penn Capital Management, said in a recent interview with Investing.com's Yasin Ebrahim.

“There's reluctance both on the borrower side in the lender side that has caused a tightening that will have an impact on growth, and it did help the Fed to an extent because not everybody out there is running around borrowing a ton of money to grow, potentially causing faster inflation,” Green added.

Following the rate decision, investor focus will shift to Fed Chairman Jerome Powell’s press conference at 2:30pm ET. The fed chairman is likely press for insight into the Fed’s thinking on the factors that force the central bank to resume hiking.

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