The Federal Reserve (Fed) raised interest rates on Wednesday by another 25 basis points (an increase of 0.25%). As a result, interest rates continue to increase and are in the range of 4.75% to 5%. This is the highest level since September 2007.
In a statement following Jerome Powell's press conference, Fed officials indicated that amid the collapse of the banking sector, financial markets are affecting inflation and the economy. However, they expressed their confidence in the U.S. banking system:
The US banking system is sound and resilient (...) Recent developments are likely to result in tighter credit conditions for households and businesses and weigh on economic activity, hiring and inflation. The extent of these effects is uncertain.
FED Pres Conf by Verónica Silveri on Scribd
Ninth hike amid banking collapse
Some investors and economists urged Fed officials to halt rate hikes because of the banking chaos caused by the Silicon Valley Bank and Signature Bank interventions. According to some of them, this increase could trigger more bank failures.
However, the committee made its decision unanimously, assuring that they "remain very vigilant on inflation risks.” This increase sends the message that lowering inflation levels and controlling price stability is a priority.
The Fed released its forecast for the end of 2023 and is still forecasting a rate hike to 5.1%. This means that they expect an additional quarter point increase before pausing. They also indicated that continued increases will be slower and rates will likely remain higher for longer.
Officials project that by 2024 the economy will grow by 1.2% (down from the 1.6% they projected in December). The Fed also expects unemployment to fall below expectations by the end of this year to 4.5% (from 4.6% projected in December). Meanwhile, inflation could remain higher than expected.
