WASHINGTON: The US Federal Reserve raised its benchmark lending rate on Wednesday (Mar 22), as it sought to strike a balance between curbing high inflation and averting further upheaval in the commercial banking sector.
The quarter-point increase, which was in line with expectations, lifted the target range to 4.75-5.00 per cent at the end of a two-day policy meeting.
While the Fed has expressed commitment to lowering inflation, there have been concerns that higher rates could deepen banking sector turmoil following Silicon Valley Bank’s (SVB) rapid collapse.
SVB, to meet liquidity needs, had to sell assets it had expected to hold to maturity and these had lost market value while rates increased.
In a statement on Wednesday, 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 policy-setting Federal Open Market Committee (FOMC) added that “some additional policy firming may be appropriate” to get to a stance that is sufficiently restrictive to bring inflation down.
The latest increase was the same size as the central bank’s previous rate decision in February, and marks its ninth straight rate hike.
It comes after two weeks of market turmoil and the collapse of three regional lenders.
Wednesday’s decision underscores the Fed’s determination to tackle inflation, which remains stubbornly above policymakers’ long-term annual target of two percent despite an effort to lower price increases.
