Federal Reserve increases interest rates by a quarter point to 16-year high – as it happened

Afternoon summary

Democratic senator Raphael Warnock from Georgia said that his two young kids were on lockdown at school because of the shooting in midtown Atlanta.

“They’re there. I’m here, hoping and praying they’re safe,” he said on the Senate floor. “Thoughts and prayers are not enough.”

One person has been confirmed dead and at least four injured after a gunman opened fire in a building in midtown around 12.30pm ET. Police said they are still searching for a suspect.

The Washington Post just published a cheery report that the White House and lawmakers on Capitol Hill technically have just six working days together before the US government potentially defaults on its debt on 1 June.

With the House and Senate in session on different days, and Biden making international trips for the G7 summit in Japan and another “Quad” meeting with Australia, Japan and India in Australia, the legislative and executive branches are scheduled to have just six more days together to figure out the debt ceiling.

Of course, negotiations can take place even when a chamber is not in session, but the precariousness of negotiations and the closeness of default makes the timing a tad inconvenient.

Talking about the fallout of the collapse of Silicon Valley Bank in March, Federal Reserve chair Jerome Powell said that it seems the worst of the crisis is over.

“The severe period of stress, those have now all been resolved and all the depositors have been protected,” he said, adding that JPMorgan’s acquisition of First Republic bank marked the end of the worst of it all.

Asked about lessons that he learned from the crisis, he noted that there needs to be stronger regulation and supervision, but declined to offer any specifics as he has tasked Fed vice chair Michael Barr with drafting specific policy proposals.

“I am not aware of anybody thinking [the collapse] could happen so quickly,” Powell said. “Now that we know that was possible… it will be up to vice chair Barr to design ways to address that.”

Today’s Federal Reserve interest rate hike is its second quarter-point hike in a row, after a series of half- and three-quarter point hikes over the last year. Fed chair Jerome Powell said at his press conference this afternoon that “slowing down was the right move”.

“I think it’s enabled us to see more data and it will continue to do so. We have to always balance the risk of not doing enough and not getting inflation under control against the risk of maybe slowing down economic activity too much,” he said. “We thought that this rate hike, along with the meaningful change in our policy statement, was the right way to balance that.

Asked about the possibility of a recession, Powell seemed optimistic that the Fed could achieve a “soft landing” – keeping interest rates high without seeing huge impacts on unemployment. He noted that even as rates have hit 5% over the last 14 months, the unemployment rate stands at 3.5%.

“It’s possible that we can continue to have a cooling in the labor market without having the big increases in unemployment that have gone with many prior episodes,” he said.

Of course, Powell noted earlier in the press conference that the full impacts of the interest rate increases have yet to be seen, acknowledging uncertainty about the full economic impact of rate hikes.

Federal Reserve chair Jerome Powell emphasized the importance of raising the debt ceiling, though noted that the debt limit is “fiscal policy matters”.

“It’s essential that the debt ceiling be raised in a timely way so that the US government can pay all of its bills when they’re due. Failure to do that would be unprecedented,” he said. “We’d be in uncharted territory.

Powell noted that the Fed doesn’t “give advice to either side” and also noted that “no one should assume that the Fed can protect the economy from the potential short- and long-term effects” upon default.

He also noted that debt limit standoff did not play a role in the Fed’s decision today to increase interest rates.

Federal Reserve chair Jerome Powell is holding a press conference after the central bank announced a quarter-point interest rate increase. Powell’s tone in the press conference has changed since he last addressed the press in March. The Fed is no longer anticipating needing more rate increases, but will monitor the economy in determining future interest rate changes.

While Powell is still reiterating the Fed’s inflation target of 2%, he acknowledged that the economy is “seeing the effects of our policy tightening on demand and the most interest-rate-sensitive sectors of the economy, particularly housing and investment”. In other words, the Fed sees its interest rate hikes taking effect in the slowing of the economy.

“There are some signs that supply and demand in the labor market are coming back into balance,” Powell said. He added that the “economy is likely to face further headwinds from tighter credit conditions”, meaning the full effects of the interest-rate hikes have yet to be seen.

Taking a question from a reporter on whether the Fed’s statement today should be taken as a hint that officials will pause rate hikes, Powell said the officials did not make a decision on a pause, but noted that they intentionally updated their stance in today’s press statement that removed a line suggesting more increases would be appropriate.

“Instead, we’re saying that in determining the extent to which [more hikes are needed], the Committee will take into account certain factors,” he said. “That’s a meaningful change that we are no longer saying we anticipate [changes] and we will be driven by incoming data meeting by meeting.”

The press statement that came with the Federal Reserve’s announcement of another interest rate hike is nearly identical to the one that was released at its last meeting on 22 March, with one key exception.

In its 22 March release, Fed officials in the Federal Open Market Committee (FOMC) hinted that more interest rates are to come, saying: “The Committee anticipates that some additional policy firming may be appropriate” in order to bring inflation down to the target of 2%.

In today’s statement, that line was cut.

The rest of the statement was in line with FOMC’s March meeting statement. They reiterated their stance that “inflation remains elevated” and the jobs market has been strong, with the unemployment rate low. They emphasized that “the US banking system is sound and resilient” and that they are “highly attentive to inflation risks”.

Analysts have been wondering whether this interest rate increase will be the Fed’s last, with pauses to come after as the interest rate is held steady at future meetings.

Any more hints about what is next for interest rates after this most recent hike will likely be made at Fed chair Jerome Powell’s press conference at 2.30pm ET.

Fed increases interest rate by a quarter point

The United Auto Workers (UAW) union said in an internal memo that it is holding off on a Joe Biden endorsement due to the president’s electric vehicle policies.

UAW president Shawn Fain said in the memo that union leaders met with Biden last week and discussed “our concerns with the electric vehicle transition”, according to the New York Times. The union is concerned that auto workers will suffer during the transition to EV as less workers are needed to assemble EVs.

“The EV transition is at serious risk of becoming a race to the bottom,” the memo reads, referring to electric vehicles. “We want to see national leadership have our back on this before we make any commitments.”

The union has 400,000 members across the country, though members are primarily in auto-industry heavyweight Michigan, a key election battleground state.

The FBI arrested a man in Florida on Tuesday for his involvement in the January 6th Capitol riots, specifically for setting off an “explosive device” in the US Capitol tunnel that leads into the building.

Daniel Ball, 38, was first arrested last week by the Citrus County Sheriff’s Office for assaulting seven people, including law enforcement officers, in Florida. Ball’s probation officer, upon being shown photos and videos of the Capitol riot, identified Ball as the person throwing an explosive device in the tunnel, where law enforcement was blocking rioters.

Ball faces multiple charges related to the riot, including assaulting police officers and entering a restricted area with a deadly weapon.

The justice department said in March that at least 1,000 people have been arrested on charges related to the riots, with 518 pleading guilty to federal crimes so far.

Election denier Jim Marchant announced that he will be running for the US Senate, challenging Democrat incumbent Jacky Rosen for the seat she won in 2018.

During his announcement speech on Tuesday, Marchant said that he is running to “protect Nevadans from the overbearing government, from Silicon Valley, from big media, from labor unions, from the radical gender-change advocates,” the Washington Post reported.

His election campaign was acknowledged by Rosen on Twitter, who replied to Marchant’s announcement:

Nevadans deserve a Senator who will fight for them, not a MAGA election denier who opposes abortion rights even in cases of rape and incest…

While far-right politicians like Jim Marchant spread baseless conspiracy theories, I’ve always focused on solving problems for Nevadans.

Marchant has described himself as a “MAGA conservative”, the Post reports, and is an avid supporter of Donald Trump.