Traders work on the floor of the New York Stock Exchange on Wednesday, March 22, 2023 in New York. News on a Federal Reserve interest rate hike appears on a monitor in the background. , Photo Credit: AP
The Federal Reserve raised interest rates by a quarter percentage point on Wednesday but signaled that borrowing costs are on the verge of rising further amid recent turmoil in financial markets from the collapse of two US banks.
The move set the US central bank’s benchmark overnight interest rate in a range of 4.75%-5.00%, with updated projections showing 10 of 18 Fed policymakers still expect another cut in rates by the end of this year. quarter of a percentage point, the same endpoint seen in the December estimates.
But in a sudden significant change driven This Month’s Failures of Silicon Valley Banks (SVB) and Signature Bank, the Fed’s latest policy statement no longer said that an “ongoing increase” in rates would be appropriate. This language was in every policy statement since the decision to start the rate hike cycle on March 16, 2022.
Instead, the policy-setting Federal Open Market Committee said only that “some additional policy setting may be appropriate,” leaving open the possibility that another quarter-percentage-point rate hike might be the Fed’s next. At the meeting, they represent at least the initial stopping point for rate hikes.
Although the policy statement stated that the US banking system is “robust and resilient”, it also noted that recent stress in the banking sector has resulted in “tighter credit conditions for households and businesses and on economic activity, hiring and inflation”. Loads are likely to fall.” ,
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There was no disagreement on the policy decision.
The document made no presumption that the battle with inflation has been won. The new statement removed language saying that inflation “has subsided” and replaced it with a declaration that inflation “has increased.”
Job gains are “robust,” according to the Fed.
Officials forecast the unemployment rate to end at 4.5%, down slightly from December’s 4.6%, while the economic growth outlook fell slightly to 0.4% from 0.5% in previous estimates. Inflation now looks set to end up at 3.3%, compared to 3.1% in the previous estimates.
The outcome of this week’s two-day meeting marked an abrupt repositioning of the central bank’s strategy from two weeks ago, when Fed Chair Jerome Powell testified in Congress that higher-than-expected inflation could force the central bank to raise interest rates. Will do More than expected and possibly faster.
The collapse and subsequent collapse of the California-based SVB on March 10 New York-based Signature Bank highlighted widespread concerns about the health of the banking sector, and raised the possibility that further Fed rate hikes could push the economy toward a financial crisis.
Powell is scheduled to hold a news conference at 2:30 p.m. EDT (1830 GMT) to elaborate on the Fed’s views on policy decisions and recent events.