Despite the turmoil caused by Silicon Valley Bank’s collapse, the Federal Reserve continued its aggressive campaign to control inflation by raising its key short-term interest rate by a quarter of a point.
However, in recognition of the fact that the crisis will limit bank lending, weaken the economy, and raise inflation, officials at the Federal Reserve now anticipate only one more rate hike this year, and even that is uncertain. According to the median estimate of the officials, the Fed anticipates another quarter-point increase to a peak range of 5% to 5.25 percent, which is in line with its estimate from December but is lower than the level markets anticipated prior to the collapse of SVB.
The Fed added that it is too early to tell how much the stricter bank loaning will stumble the economy and manageable expansion yet said it very well may be surprisingly critical and the Fed might have less work to do. The Federal Reserve said in a statement that the recent strains in the country’s banks will soften the economy but that the financial system is stable.
According to the Fed, the US banking system is robust and stable. The recent developments are likely to have an impact on economic activity, hiring, and inflation as well as tighten credit conditions for households and businesses. It’s not clear how big these effects are. The Fed’s policymaking committee continues to pay close attention to inflation risks, and the central bank emphasized that limiting increases in consumer prices remains its top priority.
In addition, the Fed stated that it may require additional policy firming to bring inflation down to the Fed’s target of 2%, indicating that it is nearing the end of the hiking cycle and that the anticipated final quarter-point move is uncertain. It already has said continuous increments will be proper. Powell, on the other hand, told reporters that the Fed had to act on Wednesday to boost public confidence in the Fed’s ability to control inflation, which hit a 40-year high of 9.1% in June.