MARCH 27, 2023 – FED RAISES RATES BY 25 BPS DESPITE BANKING TURMOIL
At their scheduled meeting last week, the Fed raised interest rates by 0.25 percent, its ninth consecutive increase. The rate hike was half the increase the Fed had been instituting lately, but some had been expecting no increase due to the current uncertainty in the banking sector. The benchmark rate now stands at 4.75-5.0 percent. The Fed said “The US banking system is sound and resilient”, but warned the collapse of two banks would “likely result in tighter credit conditions… and weigh on economic activity, hiring and inflation.”
In their issued statement the bank signaled it is likely nearing then end of its aggressive series of interest rate hikes by removing the language that pointed it would keep rates rising at subsequent meetings. The statement was amended to say “some additional policy firming may be appropriate.”
The Fed is confident it can cool inflation by using higher rates while calming the unrest in the banking sector by emergency lending programs and the Biden government’s decision to cover uninsured depositors at the failed banks.
Rates now stand at their highest level in 16 years as the Fed continues to worry about persistent inflation. Some economists are worried a slowdown in lending could push the economy into a recession. The Fed’s next meeting is in early May.