Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

US raises interest rates despite banking turmoil

US raises interest rates despite banking turmoil

The US central bank has raised interest rates again, despite fears that the move could add to financial turmoil after a string of bank failures.

The Federal Reserve increased its key rate by 0.25 percentage points, calling the banking system "sound and resilient".

But it also warned that fallout from the bank failures may hurt economic growth in the months ahead.

The Fed has been raising borrowing costs in a bid to stabilise prices.

But the sharp increase in interest rates since last year has led to strains in the banking system.

Two US banks - Silicon Valley Bank and Signature Bank - collapsed this month, buckling in part due to problems caused by higher interest rates.

There are concerns about the value of bonds held by banks as rising interest rates may make those bonds less valuable.

Banks tend to hold large portfolios of bonds and as a result are sitting on significant potential losses. Falls in the value of bonds held by banks are not necessarily a problem unless they are forced to sell them.

Authorities around the world have said they do not think the failures threaten widespread financial stability and need to distract from efforts to bring inflation under control.

Last week, the European Central Bank raised its key interest rate by 0.5 percentage points.

The Bank of England is due to make its own interest rate decision on Thursday, a day after official figures showed that inflation unexpectedly shot up in February to 10.4%.

Federal Reserve chairman Jerome Powell said the Fed remained focused on its inflation fight. He described Silicon Valley bank as an "outlier" in an otherwise strong financial system.

But he acknowledged that the recent turmoil was likely to drag on growth, with the full impact still unclear.


Economic impact


Forecasts released by the bank show officials expect the economy to grow just 0.4% this year and 1.2% in 2024, a sharp slowdown from the norm - and less than officials projected in December.

The announcement from the Fed also toned down earlier statements which had said "ongoing" increases in interest rates would be needed in the months ahead.

Instead, the Fed said: "Some additional policy firming may be appropriate".

The moves "signal clearly that the Fed is nervous", said Ian Shepherdson, chief economist at Pantheon Macroeconomics.


Wednesday's rate rise is the ninth in a row by the Fed. It lifts its key interest rate to 4.75%-5%, up from near zero a year ago - the highest level since 2007.

Higher interest rates mean the cost to buy a home, borrow to expand a business or take on other debt goes up.

By making such activity more expensive, the Fed expects demand to fall, cooling prices.

That has started to happen in the US housing market, where purchases have slowed sharply over the last year and the median sales price in February was lower than it was a year ago - the first such decline in more than a decade.

But overall the economy has held up better than expected and prices continue to climb faster than the 2% rate considered healthy.

Inflation, the rate at which prices climb, jumped 6% in the 12 months to February. The cost of some items, including food and airfare, is surging even faster.

Before the bank failures, Mr Powell had warned that officials might need to push interest rates higher than expected to bring the situation under control.

The bank projections show policymakers expect inflation to fall this year - but less than expected a few months ago.

Still, they forecast interest rates of roughly 5.1% at the end of 2023 - unchanged since December - implying the Fed is poised to stop raising rates soon.

Mr Powell described the effect of the recent turmoil as the "equivalent of a rate hike".

He said the Fed may be able raise its key rate less aggressively, if the turmoil in the financial system prompts banks to limit lending, and the economy to slow more quickly.

But he repeated that the Fed would not shy away from its inflation fight.

"We have to bring down inflation down to 2%," he said. "There are real costs to bringing it down to 2% but the costs of failing are much higher."

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Ukraine Declares De Facto War on Hungary and Slovakia with Terror Drone Strikes on Their Gas Lifeline
A monster hit and a billion-dollar toy empire
Animated K-pop Musical ‘KPop Demon Hunters’ Becomes Netflix’s Most-Watched Original Animated Film
Canada: Nurse Suspended and Fined 93 Thousand Dollars After Stating the World’s Most Well-Known Fact Since the Creation of Adam and Eve, That There Are Only Two Genders
Elon Musk tweeted, “Europe is dying”
Far-Right Activist Convicted of Incitement Changes Gender and Demands: "Send Me to a Women’s Prison" | The Storm in Germany
Hungary Criticizes Ukraine: "Violating Our Sovereignty"
Will this be the first country to return to negative interest rates?
U.S. Treasury Secretary Whitney Bessent Backs Stablecoins to Boost Treasury Demand
Spain to Declare Disaster Zones After Massive Wildfires
Three-Minute Battery Swap Touted as Future of EVs
Beijing Military Parade to Showcase Weapons Advances
U.S. Tech Stocks Slide on AI Boom Concerns
White House Confirms Talks Over Intel Stake
Trump Suggests U.S. Could Support Ukraine ‘By Air’
Trump Called Viktor Orbán: "Why Are You Using the Veto"
Horror in the Skies: Plane Engine Exploded, Passengers Sent Farewell Messages
AI in Policing: Draft One Helps Speed Up Reports but Raises Legal and Ethical Concerns
Shame in Norway: Crown Princess’s Son Accused of Four Rapes
Apple Begins Simultaneous iPhone 17 Production in India and China
A Robot to Give Birth: The Chinese Announcement That Shakes the World
Finnish MP Dies by Suicide in Parliament Building
Outrage in the Tennis World After Jannik Sinner’s Withdrawal Storm
Class Action Lawsuit Against Volkswagen: Steering Wheel Switches Cause Accidents
UK Government Tries to Sue 4chan for Breaching Online Safety Act
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Miles Worth Billions: How Airlines Generate Huge Profits
Cambridge Dictionary Adds 'Skibidi,' 'Delulu,' and 'Tradwife' Amid Surge of Online Slang
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
The CEO Who Replaced 80% of Employees for the AI Revolution: "I Would Do It Again"
"Every Centimeter of Your Body Is a Masterpiece": The Shocking Meta Document Revealed
Character.ai Bets on Future of AI Companionship
China Ramps Up Tax Crackdown on Overseas Investments
Japanese Office Furniture Maker Expands into Bomb Shelter Market
Intel Shares Surge on Possible U.S. Government Investment
Hurricane Erin Threatens U.S. East Coast with Dangerous Surf
EU Blocks Trade Statement Over Digital Rule Dispute
EU Sends Record Aid as Spain Battles Wildfires
Beijing is moving into gold and other assets, diversifying away from the dollar
China Requires Data Centres to Source Majority of AI Chips Locally, For Technological Sovereignty
Escalating Clashes in Serbia as Anti-Government Protests Spread Nationwide
Category 5 Hurricane in the Caribbean: 'Catastrophic Storm' with Winds of 255 km/h
Trump Backs Putin’s Land-for-Peace Proposal Amid Kyiv’s Rejection
Digital Humans Move Beyond Sci-Fi: From Virtual DJs to AI Customer Agents
YouTube will start using AI to guess your age. If it’s wrong, you’ll have to prove it
Jellyfish Swarm Triggers Shutdown at Gravelines Nuclear Power Station in Northern France
OpenAI’s ‘PhD-Level’ ChatGPT 5 Stumbles, Struggles to Even Label a Map
Zelenskyy to Visit Washington after Trump–Putin Summit Yields No Agreement
×