The Federal Reserve is raising interest rates another 0.25 point to 5.25% to fight inflation – brushing off renewed fears of a banking crisis after the collapse of the First Republic
- The Fed hiked interest rates to a range of 5% to 5.25% on Wednesday.
- It’s the 10th straight rate hike as the central bank fights inflation
- The Fed indicated that it could suspend rate hikes from its next meeting in June
The Federal Reserve has hiked interest rates for the tenth consecutive year to combat inflation while preventing new banking concerns from spreading.
As widely expected, the US Federal Reserve announced another quarter-point hike on Wednesday, bringing interest rates to a range of 5 to 5.25 percent.
It could be the last hike before the Fed halts rate hikes as policymakers try to balance their inflation battle against concerns about the impact of high interest rates on the economy and the banking sector.
After a relatively quiet period for banks following worries in March, there was some turmoil this week with the collapse of California-based lender First Republic.
The commercial bank’s collapse, the second largest in US history, was announced early Monday along with a sale to JPMorgan Chase, in a quick turnaround that regulators hoped would ease jitters in the financial sector.
Federal Reserve Chairman Jerome Powell is seen in a file photo. The US Federal Reserve announced another quarter-point hike in interest rates on Wednesday
The Federal Reserve has raised its benchmark interest rate for the tenth consecutive year in a bid to fight inflation while avoiding new concerns from banks
The US Federal Reserve began its aggressive rate hike campaign in March last year and has now raised rates ten times in a row to combat stubbornly high inflation
Inflation fell to 5 percent in March from a peak of 9.1 percent in June, but remains well above the Fed’s target rate of 2 percent.
“Getting inflation back to 2 percent has a long way to go and will likely be bumpy,” Fed Chair Jerome Powell said during a news conference following the March interest rate decision.
But after Wednesday’s decision, the Fed hinted that it could suspend further rate hikes from its next meeting in June.
In a statement after its last monetary policy meeting, the Fed removed an earlier sentence that said “some additional” rate hikes may be needed.
It replaced that phrase with language saying it would consider a range of factors to “determine the extent” to which future increases might be needed.
The Fed’s rate hikes over the past 14 months have more than doubled mortgage rates, raised the cost of auto loans, credit card borrowing and business loans, and raised the risk of a recession. As a result, home sales have plummeted.
The Fed’s latest move will further increase certain borrowing costs for families and businesses.
After a relatively quiet period for banks following worries in March, there was some turmoil this week with the collapse of California-based lender First Republic
Still, the Fed’s statement offered little evidence that its series of rate hikes has made significant progress in its goal of cooling the economy, jobs and inflation.
“Job gains have been robust in recent months and the unemployment rate has remained low,” the statement said. “Inflation remains high.”
The rise in interest rates has contributed to the collapse of three major banks and turmoil in the banking industry. All three failed banks had bought long-term bonds that paid low interest rates and then quickly lost value when the Fed hiked rates.
Development of the story, more to come.