US Fed lifts key interest rate amid banking sector fears

AFP , Wednesday 22 Mar 2023

The US Federal Reserve raised its key rate by another quarter point Wednesday, bringing it to the highest level in 15 years as part of an ongoing effort to balance between curbing high inflation and averting further upheaval in the commercial banking sector.

Federal Reserve Board Chair Jerome Powell
Federal Reserve Board Chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, DC, on March 22, 2023. AFP


The quarter-point increase, which was in line with expectations, lifts the target range to 4.75-5.00 percent at the end of a two-day policy meeting.

In a statement, the Fed said recent banking sector developments "are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation."

The increase was the same size as the central bank's previous rate decision in February.

"Some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive," the policy-setting Federal Open Market Committee (FOMC) added.

Wednesday's decision underscores the Fed's determination to tackle inflation, which remains stubbornly above policymakers' long-term annual target of two percent.

Unemployment, its other main responsibility, remains close to historic lows, adding to pressure on the central bank.

The Fed also updated its economic projections on Wednesday, slightly lowering its 2023 GDP growth projections to 0.4 percent from 0.5 percent in December.

Median projections for the Fed's benchmark rate at the end of this year were unchanged, while inflation expectations rose slightly.

The combination of hot economic data at the start of the year and uncertainty in the banking sector sparked by the collapse of Silicon Valley Bank led analysts to predict the Fed would continue with a more modest hike than previously predicted.

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