The Federal Reserve raises interest rates by 0.25 percentage points

The Federal Reserve raised its key interest rate by another quarter of a percentage point on Wednesday in its continued attempt to crush inflation, but indicated it may pause increases to assess the impact of monetary tightening on the US economy.

The Fed’s rate-setting body said it would raise its benchmark interest rate to a range of 5% to 5.25%, the highest level since 2007. The increase was the tenth consecutive hike in interest rates since last March at what was the most aggressive rate hike. Hiking system since the 1980s.

Higher interest rates make inflation worse More expensive for businesses and consumers To borrow money, which leads to a slowdown in economic activity. Many economists have called on the Fed to stop the current system of raising interest rates to avoid tipping the economy into recession and, more recently, increasing pressure on the banking sector.

In its statement on Wednesday, the Federal Open Market Committee indicated that this may be the latest increase, and omitted reference to “future increases” that had appeared in previous data, noting that “tougher credit conditions for households and businesses are likely to affect economic activity and employment.” and inflation.”

“The Fed no longer limits that further increases should be clearly expected, but this falls short of a strong commitment to ‘pause’ interest rate hikes,” Brian Colton, chief economist at Fitch, said in a note. “They are still talking about how to determine the ‘extent’ of additional policy stabilization – not whether or not additional tightening is needed. The continued tightening of credit conditions has been acknowledged, but they are still raising rates today and have left the window open for future hikes.”

Fed Chairman Jerome Powell confirmed that the Fed remains committed to lowering inflation from its current annual rate of 5% to the bank’s target of 2%, and warned that it should not expect to cut interest rates anytime soon.

“Inflation is going to come down not that fast. It will take some time,” he said. “And in this world, if these predictions are generally correct, it would not be appropriate to lower interest rates.”

Banking sector ‘sound and resilient’

to fail First Republic Bank Over the weekend, JPMorgan Chase’s takeover of its assets caused tremors in financial markets, marking the bank’s third failure since March and the second largest in US history.

Federal Reserve Chairman Jerome Powell sought to calm concerns about the financial sector at a press conference on Wednesday, telling reporters that conditions have improved since regulators took over the Silicon Valley bank on March 10 and that the banking industry is “sound and resilient.”

However, banks are likely to be more reluctant to lend in the aftermath of the turmoil, further slowing the economy and easing inflation pressures, he said.

“The stresses that emerged in the banking sector in March led to a tightening of conditions. Tightened credit conditions are likely to affect economic activity, employment and inflation,” Powell said. “In light of these uncertain headwinds, together with the monetary policy adjustment we have imposed, our future policy actions will depend on how events unfold.”

How does First Republic compare to other bank failures?

And he deflected a question about whether JPMorgan’s purchase of First Republic posed a threat by making the nation’s largest bank even bigger.

“I think it’s probably good policy that we don’t want big banks to make big acquisitions. That’s the policy. But that’s an exception for a struggling bank, and I think it’s a good outcome for the banking system,” he said. , adding that the law requires regulators to sell troubled banks in a way that is less costly to the financial system.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top