Federal Reserve: Pause or Peak?

The central bank likely won't have enough reason to hike rates again this cycle. In fact, we wouldn't be surprised to see one or two rate cuts later this year.

As expected, the Federal Reserve raised short-term interest rates by 25 basis points at its May 2-3 meeting. With the rate hike, the upper bound of the federal funds rate target is now 5.25%, the same level as the peak of the last cycle in 2006-2007.

Federal Funds

In the statement released after the meeting, the Fed hinted that its aggressive rate-hiking cycle is on hold as it assesses the outlook for growth and inflation, but left the door open to further tightening, citing ongoing high inflation as its primary concern. While the Fed may not be certain about its next move, the market is pricing in the likelihood of two rate cuts of 25 basis points1 each later in the year.