Fed raises rates despite banking turmoil

At the end of its meeting, the American central bank (Fed) announced an increase in its rate, by 0.25 basis point, bringing the main rates of its federal funds to a range between 4.75% and 5 %, according to the press release from the monetary institution. This is the ninth rate hike made by the institution since the summer of 2022.

This time, the Federal Reserve found itself having to arbitrate between continuing to raise its main key rate to curb high inflation or taking a break, in order to avoid aggravating the difficulties of the banks, the sector being weakened by the bankruptcy of the Californian establishment SBV and raising fears of contagion.

Uncertain effects

The Fed warned that the recent banking crisis was « susceptible (…) to weigh on economic activity, hiring and inflation”. “The magnitude of these effects is uncertain”she pointed out.

But, notes the institution, “the American banking system is sound and resilient”, while job creations have accelerated in recent months and the unemployment rate remains low. Above all, inflation remains high. “The Committee anticipates that some additional policy tightening may be appropriate to achieve a monetary policy stance tight enough to bring inflation down to 2% over time”underlines the press release.

New projections from the US central bank show that ten out of 18 members of the monetary policy committee (FOMC) expect rates to rise another quarter of a percentage point by the end of the month. year, which is identical to the outlook announced in December.

One last increase before the end of the year

In a notable change, the committee statement no longer mentions that further rate hikes will be appropriate. Instead, the committee notes that“Further tightening of monetary policy may be appropriate”raising the possibility of a final quarter-percentage-point increase this year.

On the New York Stock Exchange, the S&P 500 index was up slightly by 0.26% and the 10-year bond was down slightly to 3.5374%.