BUSINESSUNITED STATES OF AMERICA
US Federal Reserve increases interest rates by 0.25%
2 hours ago2 hours ago
The US Federal Reserve has increased its base interest rates by 0.25%, in line with market expectations. Pressure on banks in the US and further afield had put more attention on the decision.
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The Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point, but also indicated that it might be gearing up to pause further increases in borrowing costs amid the recent turbulence on financial markets spurred by the collapse of two US banks.
The move put the central bank’s benchmark overnight rate charged to commercial lenders in the range of 4.75% to 5%.
But for the first time since March last year, the Fed’s statement did not say that “ongoing increases” in rates would likely be appropriate. Instead, the Fed said that “some additional policy firming may be appropriate.” This was taken as an indication that the rising rates might soon flatten out, possibly after one more 0.25% increase as previously rumored.
The collapse of Silicon Valley Bank and later Signature Bank in the US had put pressure on financial markets and the banking sector, also helping lead to what was dubbed the weekend “shotgun marriage” of giant Swiss banks UBS and Credit Suisse, whose share price went into freefall last week.
Jerome Powell says ‘depositors’ savings … are safe’
Federal Reserve Chair Jerome Powell spoke to reporters around half an hour after the announcement on Wednesday.
Powell said that “depositors’ savings in the banking system are safe” and that the central bank would work to prevent episodes like the recent turmoil repeating itself.
Unlike Switzerland, which sought to set up a commercial merger in a bid to consolidate Credit Suisse, the US has opted to let the smaller and more niche lenders in difficulties fail, guaranteeing the deposits of smaller holders at the banks.
“We will continue to closely monitor conditions … and are prepared to use all of our tools as needed to keep it safe and sound,” he told the press briefing, adding that authorities were “committed to learning the lessons” of the banks’ difficulties.
The top Democrat in the Senate, Chuck Schumer, appeared to question the wisdom of Wednesday’s increase.
“There are competing equities on both sides,” Schumer said. “I will say I am concerned about its effect on the economy.”
The Fed’s interest rates are different to, and generally much lower than, interest charged to consumers for mortgages or loans and so forth, but they do tend to have a more or less direct impact on the rates set by commercial banks.
msh/nm (AFP, AP, Reuters)
