Fed raises rates again despite pressure on banking system

Fed raises  rates again despite pressure on banking system

The Federal Reserve raised interest rates for the ninth consecutive time on Wednesday, choosing to continue its campaign to fight high inflation despite pressure on the banking sector following the collapse of two regional lenders.

 Federal Reserve policymakers voted unanimously to raise the benchmark interest rate by a quarter of a percentage point to just under 5%, which would make it more expensive for people at risk. looking for auto loans or credit card balances. Will the turbulence in the banking sector affect you? 5 Ways Economy Banking Turmoil Affecting You? 5 Ways Members of the Federal Reserve's rate-setting committee believe slightly higher interest rates may be needed to restore price stability.

 Policymakers expect rates to rise another 25 percentage points by the end of the year, according to new forecasts released on Wednesday. The Fed said in a statement that "the committee anticipates that additional tightening may be appropriate." Bank failures sound the alarm Some observers have urged the central bank to suspend rate hikes, at least temporarily, to gauge the impact of the collapse of Silicon Valley Bank and Signature Bank. However, the pressure on the banking system has eased in recent days. Treasury Secretary Janet Yellen said on Tuesday that large withdrawals from regional banks had "stabilized". The Fed's Monetary Policy Statement said, "The US banking system is healthy and resilient. Meanwhile, consumer prices continue to rise rapidly. Annual inflation was 6% in February - up from 9%. It was 1% last June, but still well above the Fed's 2% target.

 The central bank is particularly concerned about rising costs for services such as airline tickets and streaming TV subscriptions. "My colleagues and I know that high inflation can cause serious hardship as it erodes purchasing power, especially for those least able to afford the higher costs of basic necessities like food , housing and transportation," Federal Reserve Chairman Jay Rom Powell told reporters. . He was at the press conference after the meeting. Fed under pressure from bank failures The Fed is also under scrutiny for its monitoring of two bankrupt banks. 

The California bank had to be taken over by the US government after Fed regulators reportedly identified problems with Silicon Valley Bank's risk management practices years ago but failed to fix them. The US government after a massive bank run. "We need to be humble and take a careful and careful look at how we oversee and regulate this business," said Michael Barr, Fed vice chairman for oversight. Barr is reviewing and has pledged to submit a report by May 1. He will also testify before two congressional committees next week. Others have called for an independent investigation into the Fed's role in the bank's failure. "There will definitely be a 100% independent investigation," Powell told reporters on Wednesday. "When a bank fails, there is an investigation, and we certainly welcome that. Senators Elizabeth Warren, D-Mass. , also proposed replacing the Fed's internal inspector general with an external comptroller appointed by the president. Recession fears fueled by banking turmoil The Fed will have to weigh the impact of two local bank failures in deciding whether to raise interest rates in the future. Since the collapse of Silicon Valley Bank and Signature Bank, expect other banks to be more cautious in lending. "Recent developments could lead to tighter credit conditions for households and businesses and weigh on economic activity, hiring and inflation," the Fed statement said. "The magnitude of this effect is uncertain. Janet Yellen says the United States is ready to protect depositors in small banks economy Janet Yellen says the United States is ready to protect depositors in small banks tighter credit conditions if necessary, such as rising interest rates, will lead to slower economic growth. "Credit is the grease that keeps small businesses and the economy as a whole turning," said Kathy Bostjancic, Nationwide's chief economist. Expected - pullback." This could help the Fed fight inflation. But it also increases the risk of a recession. Still, Fed policymakers don't expect a recession. Members of the rate-setting committee on average expect the economy to grow 0.4% this year, according to forecasts on Wednesday. They expect the unemployment rate to rise to 4.5% from 3.6% in February.