Fed raises interest rates 25 basis points

 

Fed raises interest rates 25 basis points

The Federal Reserve announced it hiked interest rates by another 25 basis points, in line with Wall Street's predictions.

This marks the central bank's ninth hike since it began raising rates March 2022, as well as its first announcement following the recent fallout in the banking sector. The increase takes the benchmark federal funds rate to a target range between 4.75%-5%.

Most officials now expect the policy rate to peak at 5-5.25 per cent this year and for that level to be maintained until at least 2024. Policymakers pencilled in a series of rate cuts by the end of next year, with the federal funds rate falling back down to 4.3 per cent.

The US central bank last published officials’ estimates in December, when most expected the federal funds rate to peak at 5-5.25 per cent. In the days leading up to the March meeting, former officials, economists and investors were at odds over how the Fed should proceed, with those in favour of a pause arguing that the central bank could further unsettle an already tenuous situation by ploughing ahead with another rate rise. Following the collapse of SVB and Signature, the Fed rolled out an emergency lending facility to help small and medium-sized banks struggling with a flight of depositors to larger institutions. It also worked with the Treasury department and the Federal Deposit Insurance Corporation to guarantee deposits held at the two failed banks — even those above the $250,000 threshold for government insurance. On Tuesday, Treasury secretary Janet Yellen said US authorities could take further steps to shore up the financial system if necessary. Her comments followed an announcement on Sunday from the Fed and five other leading central banks that they would move to improve access to US dollar liquidity after the forced takeover of Credit Suisse by UBS brokered by Swiss officials last weekend. The Fed has come under fire over the recent string of bank failures, facing questions about how closely officials were monitoring regional lenders following a roll-back in the rules governing them -- measures that Powell himself endorsed in 2019.