Federal Reserve Raises Interest Rate by 25bps, Insists ‘US Banking System Is Sound and Resilient’
The U.S. Federal Reserve, in conjunction with the Federal Open Market Committee (FOMC), announced on Wednesday that the central bank would raise the federal funds rate by 25 basis points (bps), as was widely expected by the market. This marks the tenth consecutive occasion in which the Fed has raised interest rates since the initial 25bps increase in March 2022.
FOMC Announcement Says ‘Additional Policy Firming May Be Appropriate’
At 2:00 p.m. Eastern Time, the central bank raised the benchmark interest rate citing that economic activity expanded “at a modest pace in the first quarter.” The Fed’s announcement noted that unemployment has been low but “inflation remains elevated.” The FOMC announcement further addressed the issues in the U.S. banking industry and the committee emphasized that the “U.S. banking system is sound and resilient.”
The Fed’s unbroken chain of rate hikes is a testament to the bank’s unwavering commitment to getting inflation down. The FOMC’s press release notes a priority to get the inflation rate down to the 2% range. “In support of these goals, the committee decided to raise the target range for the federal funds rate to 5 to 5-1/4 percent,” the FOMC said on Wednesday.
The news caused all four major U.S. benchmark stock indexes to jump, alongside a modest spike in precious metals and crypto markets. However, investors at the time were still waiting to hear what Fed chairman Jerome Powell had to say concerning rates going forward. It’s been speculated that the Fed will stop its rate hikes for the rest of the calendar year.
While some market observers expect the central bank to pivot and cut the benchmark bank rate, the FOMC said the committee still anticipates that some “additional policy firming may be appropriate to return inflation to 2 percent over time.” The FOMC message does not explain whether or not the Fed will keep the rate the same at the meeting in June.
During the press conference, Powell addressed the U.S. debt limit and expressed hope that a resolution would be reached. Consistent with his previous statements, the Fed believes that failure to raise the debt limit could lead to financial disruption. As for the Fed’s next move, Powell stated that the central bank is “prepared to do more if greater monetary policy is warranted.”
What do you think the Federal Reserve’s decision to raise interest rates means for the U.S. economy? Share your thoughts and opinions in the comments section below.
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