WASHINGTON: The US Federal Reserve raised its benchmark lending rate for a tenth time on Wednesday (May 3) in a move that could be the last in the current cycle if the economy cools sufficiently.

The central bank embarked on an aggressive campaign of rate hikes in March last year to take aim at price increases. But more than a year later, inflation remains stubbornly above its long-term target of 2 per cent.

The US central bank raised its benchmark overnight interest rate by a quarter of a percentage point to the 5.00-5.25 per cent range, as expected by financial markets, but in doing so dropped from its policy statement language saying that it “anticipates” further rate increases would be needed.

The change doesn’t foreclose the central bank’s policy-setting committee from hiking rates again when it meets in June, but Fed Chair Jerome Powell said it was now an open question whether further increases will be warranted in an economy still facing high inflation, but also showing signs of a slowdown and with risks of a tough credit crackdown by banks on the horizon.

“We’re closer, or maybe even there,” Powell said of the end-point of rate increases that have boosted the Fed’s policy rate by a full 5 percentage points in the 10 meetings since March 2022, a torrid pace for the central bank and one that may now warrant allowing some time for the impact to be felt in full.

Using language reminiscent of when it halted its tightening cycle in 2006, the Fed said that “in determining the extent to which additional policy firming may be appropriate”, officials would take into account how the impact of monetary policy was accumulating in the economy.

Top of mind: Inflation and the impact of a credit tightening Fed officials feel is still evolving in the wake of both higher interest rates and a financial sector rattled by the recent failure of three US banks.

At a press conference following the release of the statement, Powell said inflation remains the chief concern, and that it is therefore too soon to say with certainty that the rate-hike cycle is over.

“We are prepared to do more” he said, with policy decisions from June onward to be made on a “meeting-by-meeting” basis.

He also pushed back on market expectations that the policy-setting Federal Open Market Committee would cut rates this year, saying such a move was unlikely.

“We on the committee have a view that inflation is going to come down not so quickly, it will take some time,” he told reporters, and “in that world, if that forecast is broadly right, it would not be appropriate to cut rates” this year.