Newsman: The Federal Reserve raised interest rates for the ninth time in a row on Wednesday. Federal Reserve raised its key short-term interest rate by a quarter percentage point But acknowledging the crisis will constrain bank lending and weaken the economy and inflation, Fed officials are now forecasting just one more rate hike this year and even that move is uncertain,
“You can think of (the crisis) as being the equivalent of a rate hike and perhaps more than that,” Fed Chair Jerome Powell said at a news conference. He added that “it’s too soon to tell” how much the stricter bank lending will hobble the economy and tame inflation but said it could be more significant than expected and the Fed “may have less work to do.”
It’s really just a question of not knowing at this point,” he said ” In a statement after a two-day meeting, the Fed acknowledged recent strains in the nation’s banks and said they will soften the economy but added the financial system is stable.
“The U.S. banking system is sound and resilient,” the Fed said. “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation. The extent of these effects is uncertain.”
Fed policymakers voted unanimously to raise their benchmark interest rate by a quarter percentage point to just under 5%, which will make it more expensive for people seeking car loans or carrying a balance on their credit cards.
Members of the Fed’s rate-setting committee believe slighly higher rates may be necessary to restore price stability. .
“The Committee anticipates that some additional policy firming may be appropriate,” the Fed said in a statementJerome Powell said the transfer of deposits from midsize banks to larger ones has moderated and no banks are displaying the troubles that plagued Silicon Valley Bank, calling it “an outlier.”
Fed is anticipating another quarter-point increase to a peak range of 5% to 5.25%, in line with its December estimate and lower than the level markets expected before SVB’s meltdown, according to the officials’ median estimate.
The central bank underscored that its priority remains tempering consumer price increases, adding, “The (Fed’s policymaking committee) remains highly attentive to inflation risks.”
The Fed also said “additional policy firming may be appropriate” to lower inflation to the Fed’s 2% target, signaling that it’s close to winding down the hiking cycle and even the remaining quarter-point move it anticipates isn’t definite. It previously has said “ongoing increases…will be appropriate.”
Powell, however, told reporters the Fed had to act Wednesday to bolster the public’s confidence that the Fed will subdue inflation that reached a 40-year high of 9.1% last June.
“It is important that we sustain that confidence with our actions as well as our words,” he said.
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