US Federal Reserve raises interest rates a quarter-point amid banking turmoil

theguardian.com:

Facing the worst banking crisis since 2008 and the highest inflation rate in a generation, the Federal Reserve chose to keep fighting price rises and announced another hike in interest rates.

The US central bank announced on Wednesday that its benchmark interest rate would rise another quarter of a percentage point to a range of 4.75% to 5% – its ninth consecutive rate rise and the highest rate since 2007. A year ago interest rates were close to zero.

The latest increase was smaller than the half-point increase that some had expected before a series of bank collapses shook global markets.

In a statement, the Fed said the impact of the banking crisis was “uncertain” but inflation “remains elevated”.

“The US banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation. The extent of these effects is uncertain. The committee remains highly attentive to inflation risks,” the Fed said.

The collapse of Silicon Valley Bank (SVB) earlier this month has been linked in part to the Fed’s recent rate moves. SVB had poured deposits into long-term securities whose value had fallen as interest rates rose. Those losses spooked depositors and led to a run on the bank.

Inflation remains a global issue. In the UK inflation hit an annual rate of 10.4% last month. The Bank of England is expected to raise rates tomorrow in an effort to tamp down prices. The European Central Bank raised rates by 0.5 percentage points last week even as the banking crisis rocked Credit Suisse, Switzerland’s second biggest bank. Inflation in the eurozone is averaging 8.5% and was likely to remain high “for too long” without continued