Federal Reserve hikes key interest rate by a quarter-point despite US bank chaos
Federal Reserve hikes key interest rate by a quarter-point despite US bank chaos
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March 22, 2023 2:01pm
00:00 / 00:57
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The Federal Reserve hiked interest rates on Wednesday — a pivotal move that showed the central bank’s resolve to tackle inflation despite recent chaos in the US banking sector.
In a hotly anticipated decision, the rate-making Federal Open Market Committee hiked its benchmark rate by 0.25% — to a range of 4.75% to 5% — at the conclusion of the Fed’s closely watched policy meeting.
Fed Chair Jerome Powell told reporters that members of the FOMC “did consider” leaving interest rates unchanged due to concerns about the banking sector, but ultimately pushed ahead with a small hike as inflation runs high.
The chairman noted that the decision was “supported by a very strong consensus.” The bank crisis is likely to result in a tightening in credit conditions that could have the same cooling effect on the economy as an interest rate hike, Powell added.
“Such a tightening in financial conditions would work in the same direction as rate tightening,” Powell said. “You can think of it as being the equivalent of a rate hike or perhaps more than that.”
The Fed chair said a “small number of banks” had experienced “serious difficulties,” but he downplayed further risks for the sector. Overall, the banking system has “strong capital and liquidity” and “deposit flows have stabilized,” according to Powell.
