Washington (EFE).- The US Federal Reserve (Fed) announced this Wednesday an increase in interest rates of 0.25 points to place them in a range of between 4.75% and 5%, in middle of the crisis caused by the collapse of two banks in the country and the rescue of a third.
This is the ninth rate hike in a year to combat inflation, although it is less than what the Fed anticipated when the banking crisis had not yet broken out.
The Fed’s Federal Open Market Committee (FOMC), which made the decision after a two-day meeting, said the “US banking system is healthy and resilient.”
“Recent events are likely to result in tighter credit conditions for households and businesses, weighing on economic activity, hiring and inflation. The extent of these effects is uncertain. The committee remains very attentive to inflation risks, ”he said in the note.
He also predicted that “some additional tightening” of his monetary policy may be appropriate to achieve his inflation target, although he stressed that he will continue to monitor the repercussions that this may have.
To try to put a stop to inflation, the Fed began the increases in March 2022 with a timid 0.25. In May it raised rates by 0.5 points and in June it already began a series of increases of 0.75 points, before slowing down to 0.50 last December and reducing them even more, to 0.25, in February.
The banking crisis, a factor to take into account
Two weeks ago, the question that experts were asking was whether the Fed would increase interest rates this time by 0.25 or 0.5 points, but everything changed with the bankruptcy of Silicon Valley Bank (SVB) and Signature Bank, whose situation The financial situation worsened due to the organism’s monetary policy, to the point that there had been speculation about the possibility that the central bank would pause the increases.
Finally, the Fed has decided to continue with the increases, since inflation in the US is still well above its 2% target and with a robust labor market. In February, inflation in the country stood at 6% year-on-year, its lowest rate since September 2021, after falling four tenths compared to January.
Given the current scenario, the country’s main economic leaders, and in particular the Secretary of the Treasury, Janet Yellen, and Powell have tried to assure citizens and the markets that the situation will not lead to a financial crisis.
Actions to avoid the extension of the collapse
The Fed has, in fact, launched a new fund so that banks that need to insure their customers’ deposits have money to do so, and it has increased the frequency with which it offers foreign exchange operations to ensure that there are enough dollars. available in the financial system.
In addition, major US banks banded together last week to bail out First Republic Bank with $30bn, which was threatening to go the way of SVB and Signature after a sharp drop in share value.
The panic due to the banking crisis also crossed the pond and almost finished off the Swiss bank Credit Suisse, which finally had to be acquired over the weekend by its competitor UBS after the crisis of confidence that was sinking its price on the market.