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The US Federal Reserve raised interest rates by a quarter of a point, giving in to market expectations that it would moderate its aggressive rate hike campaign amid turmoil in the global financial system.
The Fed raised rates on March 22 to a range of between 4.75% and 5%, its ninth consecutive rise since March 2022, when it began a cycle of tightening monetary policy to curb inflation that until today It has no signs of ending.
At the beginning of March 2023, it seemed that the Federal Reserve would reduce this rate hike campaign after slowing it down in February. But the collapse of Silicon Valley Bank on March 10 forced the Central Bank to take a step back.
Jerome Powell, the head of the Federal Reserve, warned that after Wednesday’s interest rate hike, the Fed could continue to tighten monetary policy if necessary and therefore the bank would raise rates more than expected.
Powell said that officials do not expect to cut rates this year, even as the bond market showed traders doubling down on this outcome.
The Fed Chairman explained that reducing inflation will require a period of “below-trend” growth and a moderation of labor market conditions: “Restoring price stability is essential to pave the way for maximum employment and stable prices in the long term,” he added.
The bankruptcy of banks as a backdrop
This Wednesday’s decision was one of the most difficult for Central Bank officials in recent years, due to the context of the bankruptcy of two banks in recent weeks, Silicon Valley Bank, SVB, Signature Bank, and the rescue of a third party to the First Republic Bank, whose situation worsened by the monetary policy of the organism.
The fears crossed the Atlantic and almost killed the Swiss bank Credit Suisse, which finally had to be acquired by its competitor UBS after the crisis of confidence that was sinking its price in the market.
Powell vowed that they will continue to closely monitor conditions in the banking system and use “all necessary tools” to protect it. “Our banking system is healthy, resilient, with strong capital and liquidity,” he insisted, while considering that recent events could lead to tighter credit conditions for households and businesses.
The official opined that the Fed needs to “strengthen supervision and regulation” of the banking system. “At a basic level, the management of Silicon Valley Bank failed miserably,” Powell said, noting that “supervisors saw the risks and stepped in” and were only interested in finding out what went wrong.
With EFE and AP
