The Federal Reserve raised the target range for its benchmark interest rate by 0.25% on Wednesday as it battles stubborn inflation and a banking crisis which has pushed the central bank into taking its most significant emergency actions since the onset of the pandemic.
The rate hike brings the Fed's policy rate, the federal funds rate, to a new range of 4.75%-5%, the highest since October 2007.
In its statement, the Fed said inflation remains elevated and that the central bank remains "highly attentive to inflation risks," while banking issues could cause credit conditions to tighten and weigh on economic growth.
"The U.S. banking system is sound and resilient," officials said in their policy statement.
"Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation. The extent of these effects is uncertain."
Notably, the Fed set the stage for ending its rate-hiking cycle, doing away with language for "ongoing rate increases" in interest rates.
Instead, the Fed's statement on Wednesday said: "The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time." Officials expect to continue their current balance sheet runoff as planned.
Fed officials left unchanged how high they see raising rates rising, keeping peak interest rates for this year in a range of 5%-5.25%, the same as projected back in December. Seven officials see raising rates higher than 5.25% this year, with one member seeing rates go as high as 6%. No officials see rate cuts this year.
Officials said they will closely monitor incoming information and assess the implications for monetary policy. The vote in favor of Wednesday's decision was unanimous among FOMC voters.
Ahead of this month's bank failures and before the Fed's 10-day quiet period ahead of its policy meeting which began March 10, many Fed officials were calling for rates to rise above the 5%-5.25% peak outlined late last year.
Fed Chair Jerome Powell told lawmakers in early March interest rates would likely rise more than previously thought given stronger-than expected data, which preceded the latest inflation and jobs numbers.
Powell also opened the door to raising rates at a faster pace, which the market interpreted as a 50 basis point, or 0.50%, increase, if inflation data remained hot and the February jobs report clocked in strong.
"If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," Powell told the Senate Banking Committee on March 7. The recent banking crisis has clearly altered those plans.
Fed officials also said in their statement job gains have picked up in recent months and are running at a robust pace, with the Fed's forecasts now projecting the unemployment rate to end this year at 4.5%, down from the 4.6% previously expected as of December.
Inflation is expected to finish this year at 3.6%, higher than the 3.5% projected in December, while growth is seen expanding at just 0.4%, down from the 0.5% previously forecast.