While recent turmoil in the US regional banking sector may have caused some to think a pause was on the table for today’s Federal Reverse decision; Powell delivered a widely expected quarter point rate hike. This brings the fed funds rate to a range of 5% to 5.25%, this is the highest since 2007. The FOMC is keeping their optionality as they focus on bringing inflation down to the 2% objective as there is no firm indication that a pause will follow in June. However, verbiage in the March statement surrounding “additional policy firming may be appropriate” was removed. Interestingly, language surrounding the U.S. banking system remained unchanged, “the U.S. banking system is sound and resilient” yet we’ve had one more regional bank failure since the March meeting. In light of recent headwinds, the Fed has stated they will continue to monitor the situation closely and observe the data meeting by meeting. As of today, the Fed has raised interest rates by 5%. A direct result has been tightened credit conditions, which affects household and business decisions when it comes to spending and hiring. All of which the FOMC stated “the extent of these effects remain uncertain. The committee remains highly attentive to inflation risks”. Real GDP increased at a modest annual rate of 1.1% in the first quarter of 2023 in the US and data out of a monthly Labour Department report showed an increase in layoffs and a decrease in job openings, indicating that the labour market is starting to realize the impact of the Fed’s battle against inflation. There has been unanimity among FOMC members in that they will have to maintain a fed funds rate above 5% for the remainder of the year, however interest-rate futures have signaled expectations for a rate cut before the end of 2023. Following the statement release, markets remained in the green. The next Fed meeting will take place on June 13^th and 14^th.