In its ninth straight rate hike, the Federal Reserve increased interest rates by another 25 basis points (or a quarter of a percentage point) yesterday. The move brings the benchmark funds rate to a range of 4.7% to 5%.
The Federal Reserve expressed caution about the recent banking crisis, indicating that hikes could be nearing an end. But it was noted that future increases are not assured and will depend largely on incoming data.
The Federal Open Market Committee’s post-meeting statement said, “The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
That wording is a departure from previous statements, which indicated “ongoing increases” would be appropriate to bring down inflation.
Fed Chair Jerome Powell said that “serious difficulties at a small number of banks” have emerged, which is a reference to the collapse of Silicon Valley Bank and its ripple effects across the sector.
While it sounds bizarre, the banking turmoil seems to have done some of the Fed’s work for it. Here’s how:
- The Fed had been hiking interest rates to curb borrowing and, in turn, slow down the economy and inflation.
- SVB’s implosion seems to have done precisely that. As banks hunker down during the storm, it’s “likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation,” the Fed wrote.
None of that is good for the economy, but it could help lower price growth as inflation is still ripping at 6%.
The three major stock indexes dipped to their lows on Wednesday during Jerome Powell’s press conference.
Eventually, the major averages began to curtail those losses after the Fed Chair’s question and answer session wrapped up.
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