The Federal Reserve, the US central bank, raised interest rates by a quarter point on Wednesday (22), pushing them to a range of 4.75% to 5% and continuing its attempt to combat still-high inflation.
Investors and economists had widely anticipated the modest increase of a quarter point – or even a pause in rate hikes – amid the threat of a crisis in the banking sector.
Federal Reserve Chairman Jerome Powell and policymakers entered their second annual meeting surrounded by an unusual level of uncertainty, as the landscape surrounding the financial system remains an unknown.
The central bank’s mission to combat inflation has become much more difficult in recent weeks, as the recent collapse of some banks means that the Fed needs to balance a potential financial crisis with high inflation and a tight labor market.
The banking chaos has fueled fears that the policy of raising interest rates could trigger more bank failures.
This is partly because rate increases undermine the value of Treasury bonds and other securities, a critical source of capital for most American banks. When Silicon Valley Bank was forced to sell these securities quickly at a substantial loss, the bank entered a liquidity crisis and collapsed.