Recent Bank Failures Spark Concerns of Rate Increases Despite Wage Gains, Strong Labor Market
As anticipated, the Federal Open Market Committee (FOMC) raised the target federal funds rate at the May 3rd meeting by 25 basis points to a range of 5 to 5-1/4 percent following the recent news release by the U.S. Labor Department indicating that wage growth continued a moderate upward trend during the 1st quarter and the labor market held strong. Further signs of the economy moving in a positive direction is the “cooling” of the personal-consumption expenditures price index — the Fed’s preferred gauge of consumer inflation, which according to the Commerce Department was up 4.2% year-over-year in March compared to February’s 5.1% gain but remains well above the central bank’s 2% target. However, the recent seizure of some midsize banks by regulators have made “some policy makers more cautious about the impact of the rapid pace of rate increases,” also sparking concerns about “the prospect banks could tighten lending standards as higher rates squeeze margins.”
Source: https://www.federalreserve.gov/newsevents/pressreleases/monetary20230503a.htm