US Federal Reserve votes to increase interest rates to 16-year high
The US Federal Reserve voted to increase interest rates to a 16-year high on Wednesday, even as a banking crisis has left the economy wobbling.
The quarter-point rise in the Fed’s benchmark interest rate was the 10th hike since March 2022, when interest rates were zero and the Fed started its rapid inflation-fighting campaign. The interest rate now stands at 5% to 5.25%.
The Fed chair, Jerome Powell, has consistently argued that the central bank must prioritize bringing down inflation, which hit a 40-year high in the wake of the Covid-19 pandemic.
In a statement, the Fed said the banking system was “sound and resilient.”
“Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The committee remains highly attentive to inflation risks,” said the Fed.
The statement hinted that the Fed’s rate rises – the fastest in 40 years – could be nearing an end. The statement cut a phrase suggesting additional increases might be appropriate that was included in its last rate rise announcement.
In March, the annual inflation rate was 5%, down from its peak of 9.1% in June and its lowest rate since 2021. Inflation has steadily declined over the last few months but remains well above the Fed’s target rate of 2%.
Though overall inflation has been cooling over the last few months, much of the tapering off was seen in the volatile energy sector, which a year ago saw price spikes following Russia’s invasion of Ukraine.
Core inflation, which excludes the more volatile energy and food prices, went up slightly in March as housing prices rose 8.2% over the last year. Fed officials have likely been paying attention to that issue alongside signs
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