USA: The Federal Reserve raised interest rates by another 25 basis points

The Federal Open Market Committee (FOMC) of the American central bank decided on Wednesday to raise the main interest rate by another 25 basis points (0.25 pp). In the released communiqué, the Fed signaled that this may be the last hike in the series that has been going on since last year.

The decision by the Federal Reserve is the tenth in a row and the third in a row by 25 basis points. As a result, the range of the federal funds rate is 5-5.25 percent, which is the highest level in 16 years.

In its statement, the FOMC omitted the phrase present in previous statements, in which it stated that it expects additional rate hikes may be necessary. As Federal Reserve Chairman Jerome Powell said during a press conference, this is a “significant change”. At the same time, he stressed that inflation is still at an elevated level.

“Looking forward, we will take a data-driven approach in deciding whether additional policy (interest rate) strengthening might be appropriate,” Powell said at the conference. At the same time, he announced that if further hikes are necessary, the Fed is ready to take such a step.

The decision was made two days after the collapse of First Republic Bank, which was taken over by regulators and sold to JPMorgan Chase. As commentators pointed out, the high level of interest rates was one of the main reasons for the bank’s troubles – similarly to Silicon Valley Bank before it – due to its investments in treasury bonds.

In a statement, the Fed chairman-led committee said “the US banking system is stable and resilient” and that tighter credit conditions are likely to curb economic activity, employment and inflation.

During the conference, Powell said that conditions in the banking sector had improved and that the Fed was determined to learn from bank failures, including enhancing their supervision. He also hinted that he still expects the U.S. economy to enter a “mild recession.”

At the same time, he warned that if Congress does not raise the debt limit, the consequences may be unpredictable and the Fed will not be able to protect the economy from the effects (of this omission).

The Fed still sticks to its long-term inflation target of 2%. In April, the headline CPI inflation rate was 5%.

From Washington Oskar Górzyński (PAP)

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