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Washington (AFP) – The US Federal Reserve (Fed, Central Bank), moderately increased its reference rates to 4.75-5.00% by a quarter of a percentage point, as expected by the market, still concerned about inflation and despite the problems in the banking sector that could “weigh” on the economy.
The Fed said that problems in the banking sector “are likely to result in tighter credit conditions for households and businesses, and could weigh on economic activity, employment and inflation,” according to its statement at the end of its monetary policy meeting that started on tuesday.
“The extent of the effects (of the banking crisis) is uncertain,” the central bank added.
In any case, he reaffirmed that “the US banking system (is) solid and resilient.”
The president of the Fed, Jerome Powell, affirmed in a press conference after the diffusion of the statement on Wednesday, March 22, that all the money of savers in the United States is “safe”.
Powell also stressed that the Fed will draw “lessons” from this episode and called for strengthening bank supervision and regulation.
New forecasts, new “actions”
The Fed updated its economic forecasts for the United States and now anticipates inflation that is somewhat higher than expected in December, of 3.6% in 2023 compared to 3.5% initially forecast. The central bank will continue to “watch” prices.
The agency lowered its 2023 GDP growth forecast to 0.4% from 0.5%.
The members of the Monetary Policy Committee (FOMC), which met Tuesday and Wednesday, agreed that there will be other interest rate hikes in the coming months, although in their statement they speak of “additional actions to reaffirm monetary policy”, without explicitly mention fees.
difficult balance
The Fed held its March meeting in the midst of a dilemma: continue raising its monetary policy rate to try to contain inflation by making credit more expensive and thus containing consumption and investment, or pause to avoid a worsening of the difficulties experienced by some banks exposed to rising interest rates.
The market went from expecting a strong rise of half a percentage point in rates after statements by the president of the agency, to predicting stable rates after the outbreak of the banking crisis with the bankruptcy of three financial institutions in less than a week in the United States.
The bankruptcy of regional banks Silicon Valley Bank (SVB), Signature Bank and Silvergate created a wave of concern. Governments, central banks and regulators intervened urgently to try to restore confidence in the system and prevent contagion.
Likewise, the Credit Suisse bank, which had already been in difficulties for years, was shaken and was bought last Sunday by its compatriot UBS.
The Fed lent about $164 billion to banks in about ten days so that all customers who want to withdraw their money can do so. In addition, it lent 142.8 billion to the two entities created by US regulators to manage the assets and resources of SVB and Signature Bank.
These credits raised its balance sheet, which it had been trying to reduce since last June.
The Fed was under pressure since the fall of these banks was largely due to very fast and very strong rate increases, which reduced the value of the assets of these institutions.
In addition, the European Central Bank on Thursday raised its rates by half a percentage point, ensuring that inflation is its number one priority.
In the United States, 12-month inflation eased in February to 6%, according to the Consumer Price Index (CPI).
Following the Fed’s announcements, the New York stock market fell sharply at the end of the session. After holding up during the day, the indices fell minutes before closing: the Dow Jones finally lost 1.63%, the technological Nasdaq 1.60% and the S&P 500 1.65%.
The dollar, meanwhile, lost 1.05% at 19:15 GMT against the euro. Traders saw the Fed’s announcement as a sign of easing.
