As anxious depositors withdrew their money en masse, the banks had to sell the bonds at a loss to pay the depositors. Silicon Valley Bank and Signature Bank were both brought down, indirectly, by higher rates, which pummeled the value of the Treasurys and other bonds they owned. Some economists have cautioned that even a modest quarter-point rise in the Fed's key rate, on top of its previous hikes, could imperil weaker banks whose nervous customers may decide to withdraw significant deposits. The troubles that suddenly erupted in the banking sector two weeks ago likely led to the Fed's decision to raise its benchmark rate by a quarter-point rather than a half-point. inflation remains high, putting pressure on Fed after Silicon Valley Bank failure (new window) It removed a phrase, inflation has eased somewhat, that it had included in its previous statement in February. federal funds rate to its highest level in 16 years, the Fed made it clear it is still worried about infaltion. It said that hiring is running at a robust pace and noted that inflation remains elevated. While clearly signalling it is getting close to the end of a rate hiking cycle that has taken the U.S. ![]() banking turmoil and the t akeover last weekend of Swiss bank Credit Suisse (new window) by its larger rival UBS. The Fed's move to signal that the end of its rate-hiking campaign is in sight may also soothe financial markets as they continue to digest the consequences of U.S. That's a much weaker commitment than the central bank had made previously.īut the latest rate hike suggests that Chair Jerome Powell is confident that the Fed can manage a dual challenge: Cool still-high inflation through higher loan rates while defusing the turmoil in the banking sector through emergency lending programs and the Biden administration's decision to cover uninsured deposits at the two failed U.S. The statement now says some additional policy firming may be appropriate. In a statement it issued, it removed language that had previously indicated that it would keep raising rates at upcoming meetings. The central bank also signaled that it's likely nearing the end of its aggressive series of rate hikes. ![]() banking system is sound and resilient, the Fed said in a statement after its latest policy meeting ended.Īt the same time, the Fed warned that the financial upheaval stemming from the collapse of two major banks is "likely to result in tighter credit conditions" and "weigh on economic activity, hiring and inflation." The Federal Reserve extended its year-long fight against high inflation Wednesday by raising its key interest rate by a quarter-point despite concerns that higher borrowing rates could worsen the turmoil that has gripped the banking system.
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