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WhatsNew2Day > World > US Fed announces latest interest hike in wake of banking turmoil
World

US Fed announces latest interest hike in wake of banking turmoil

Last updated: 2023/03/22 at 4:49 PM
Merry 1 day ago
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US Fed announces latest interest hike in wake of banking turmoil
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The Fed has continued its cycle of rate hikes to curb inflation, but signaled that a pause could be imminent.

The United States Federal Reserve has announced its latest rate hike, a move aimed at lowering inflation by making borrowing more expensive for consumers.

Wednesday’s rise of a quarter of a percentage point puts the overnight interest rate of the US central bank in the range of 4.75 to 5 percent, the highest level in 15 years.

The increase was widely expected and underscores the Federal Reserve’s determination to contain inflation, which remains above policymakers’ long-term target of 2 percent.

But the rate hike follows the sudden bankruptcies this month of Silicon Valley Bank (SVB) and Signature Bank. Critics blamed the Fed’s relentless rate hikes for contributing to the failures, part of the banking industry’s biggest collapse since the 2008 financial crisis, and some observers speculated that policymakers would be forced to pause rate hikes.

When asked on Wednesday whether such a pause had been considered for the last cycle, Federal Reserve Chairman Jerome Powell said “we considered that.”

Nevertheless, Wednesday’s policy statement said the US banking system is “sound and resilient.” It added that the recent stress in the sector is “likely to lead to tighter credit conditions for households and businesses and weigh on economic activity, hiring and inflation”.

The Fed also indicated that a pause in rate hikes may be in the offing. The latest policy statement omitted the oft-repeated language that “continued increases” in interest rates “will be appropriate.”

That phrase has been in every policy statement since March 16, 2022, when the Fed decided to raise rates to address inflation.

Now the language has softened. On Wednesday, the policy-making Federal Open Market Committee said instead that “some additional policy strengthening may be appropriate.”

That leaves open the chance that the Fed will raise rates another quarter of a percentage point, perhaps at its next meeting in May, but it also suggests that the next rate hike could be an initial stopping point for rate hikes.

Wednesday’s increase was the same as the central bank’s previous interest rate decision in February.

The three major US stock indices, which were mostly languid prior to the Fed’s announcement, rose higher in the immediate aftermath as investors processed the hike and accompanying statement.

Meanwhile, Powell said Wednesday that while recent stress on the banking system has made the outlook more uncertain, the economy may not face a sharp downturn as the Fed tries to contain inflation.

In terms of a soft landing for the economy, “There’s a road to that, and that road still exists,” Powell said.

Officials also predicted that the unemployment rate would end the year at 4.5 percent, slightly below the 4.6 percent seen in the December projections. The outlook for economic growth also fell slightly to 0.4 percent, against 0.5 percent in the previous estimates.

Inflation is now ending the year at 3.3 percent, compared to 3.1 percent in the latest projections.

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TAGGED: announces, banking, Business and Economics, Economy, Fed, hike, interest, latest, news, turmoil, United States, US and Canada, wake
Merry March 22, 2023
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