Federal Reserve raises interest rates amid banking turmoil
The Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point but indicated it was on the verge of pausing further increases in borrowing costs amid recent turmoil in financial markets spurred by the collapse of two US banks.
Fed Chair Jerome Powell opened his post-meeting news conference with remarks focused on the recent banking crisis, seeking to reassure depositors, consumers and businesses that the system was sound after the spate of actions that the central bank and other regulators have taken in the last two weeks.
The Fed chief said officials "are prepared to use all of our tools as needed to keep it safe and sound."
The turmoil, however, probably will take a toll on growth and the economic outlook, he said, with recent events likely to result in tighter credit conditions for households and businesses.
In a key shift driven by the sudden failures this month of Silicon Valley Bank (SVB) and Signature Bank, the Fed's latest policy statement no longer says that "ongoing increases" in rates will likely be appropriate. That language had been in every policy statement since the March 16, 2022 decision to start the rate hiking cycle.
With it being too soon to determine the results of those effects, Powell said it was appropriate to proceed with a rate hike at this meeting but also to no longer say that "ongoing" rate increases were appropriate.
The outcome of the latest two-day policy meeting marks an abrupt repositioning of the central bank's strategy from just two weeks ago when Powell testified in Congress that hotter-than-expected inflation would likely force the central bank to raise interest rates higher and possibly faster than expected.
But Powell said the central bank continues to keep its focus on bringing down inflation "because we know in the longer run that is the thing that will most benefit the people we serve."
Reuters
