The Federal Reserve hinted it may be done raising interest rates after delivering its 10th consecutive hike on Wednesday, as policymakers contend with risks to the banking system amid their battle to tamp down inflation. The central bank, which raised its policy rate by a quarter-point, dropped language used in prior statements that foretold additional rate increases, suggesting that a June pause is in play. A new statement said the Fed will consider economic and financial developments, among other factors, "in determining the extent to which additional policy firming may be appropriate" to bring inflation under control.

The fall of First Republic Bank—the second-largest bank failure in US history—reignited concerns about the health of regional banks, which play a central role in consumer and business lending. Tougher credit conditions stemming from the bank turmoil could restrict economic activity going forward, giving the Fed room to suspend its rate-hike campaign. However, inflation is still running well above the Fed's 2% target. When asked if rates are now "sufficiently restrictive," Fed Chair Jay Powell said policymakers will need to see more data. "It's not possible to say that with confidence now," he added. The Labor Department's monthly jobs report will arrive on Friday, with forecasts calling for a gain of 180,000 payrolls in April.

PGIM Fixed Income examines the Fed's latest actions in a new post on The Bond Blog, noting that Powell understandably conveyed some uncertainty given recent bank failures and shifting economic data. The markets may have run too far ahead of the Fed's cautious stance, leaving long-term rates vulnerable to a moderate increase.