Fed Leaves Policy on Hold, Ending Long String of Rate Hikes

The U.S. central bank had previously raised rates at 10 consecutive meetings spanning the previous 15 months.

AccessTimeIconJun 14, 2023 at 6:04 p.m. UTC
Updated Jun 15, 2023 at 3:42 p.m. UTC

The U.S. Federal Reserve left its benchmark fed funds rate range unchanged at 5.0-5.25% on Wednesday, citing the need for time to assess the impact on the economy of its previous monetary tightening efforts.

The move by the Fed's Federal Open Market Committee (FOMC) was almost universally anticipated by markets, and the price of bitcoin (BTC) was little-changed in the minutes following the news at just under $26,000.

Looking to tame inflation, which then was running at an annual pace of more than 8%, the Fed began tightening monetary policy in March 2022, eventually hiking rates for 10 consecutive meetings and bringing the fed funds rate from 0-0.25% to the current 5.0-5.25%. Inflation has been gradually slowing over the past year, with Tuesday's Consumer Price Index (CPI) report showing the rate falling to 4% in May, the slowest in two years. Though that pace remains above the central bank's 2% target, the Fed has reminded that monetary policy often works with long lags, and as recent rate hikes work their way through the economic pipeline, inflation is likely to fall further.

"In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," said the Fed in a statement.

The Fed's aggressive series of interest rate increases are among the numerous reasons for the bitcoin bear market – which has seen the crypto's price tumble from an all-time high near $69,000 in late 2021 to the current $26,000 area. That the central bank may be taking its foot off of the monetary brake is among the bull cases for bitcoin in 2023 and beyond.

Alongside the rate decision, the Fed released its latest quarterly economic projections, with members now seeing a terminal fed funds rate of 5.6% in 2023 versus 5.1% expected in March. The terminal fed funds rate for 4.6% at the end of 2024 compares with 4.3% seen in March. The Fed now anticipates headline inflation ending at 3.2% in 2023 and 2.5% next year. That's compared to March's projection of 3.3% in 2023 and 2.5% next year.

The terminal fed funds rate of 5.6% for 2023 suggests more rate hikes are coming this year despite today's pause. Indeed, markets are currently pricing in about a 70% chance of another 25 basis point move higher at the Fed's next meeting in July.

Speaking at his post-meeting press conference, Fed Chair Jerome Powell reiterated the central bank's commitment to bringing inflation down to its 2% target and said nearly all FOMC members – despite today's pause – expect more rates hikes this year. However, he noted, the full effects of the Fed's previous tightening have yet to be felt in the economy. Concerning the chances of rate hikes resuming at the July FOMC meeting, Powell said no decision has yet been made.

The Nasdaq and S&P 500 – both of which fell after the Fed rate decision – have moved back into modest positive territory for the day. Bitcoin remains at just under $26,000.

Updated (18:10 UTC, June 14, 2023): Adds comments from Jerome Powell's press conference and market reaction.


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Stephen  Alpher

Stephen Alpher is CoinDesk's managing editor for Markets. He holds BTC above CoinDesk’s disclosure threshold of $1,000.