The Fed hiked another 25 basis points today. That takes the Fed Funds rate to the 4.75%-5% range.
Meanwhile, core PCE, the Fed's favored inflation gauge is 4.71%.
The Fed Funds rate is above the rate of inflation, where, historically inflation has been beaten.
That said, after the rate hike, Jerome Powell (Fed Chair) actually made a strong case for why they should have done nothing (paused).
He talked a lot about the credit tightening that they think is "quite real," in his words. In fact, he said directly that the banking stress of the past two weeks, and related credit tightening, has an equivalent effect of a rate hike, and will weigh on inflation.
With that said, given that the level of interest rates has been a catalyst for breaking things in the financial system, why did they take the risk of another rate hike, and do so unanimously (no dissenting voters)?
The market had priced it in, and there was plenty of Wall Street and media commentary suggesting that a pause would signal to markets that the Fed was aware of some deeper trouble in the banking system.
It does appear that the Fed caved to that sentiment.
Still, up front, in prepared remarks, Powell assuaged concerns about financial system risks, saying the actions they've taken (providing liquidity to the troubled venture capital-related banks) "demonstrate that depositors' savings and the banking system are safe."
Overall, the markets were satisfied with the idea that the Fed said the banks are sound and depositors are safe, AND that they were likely done with rate hikes, while (importantly) back to expanding the balance sheet.
Stocks went up. Commodities went up. Market-determined interest rates went down. The dollar went down. All market signals that the Fed is done.
But then stocks did this …