Federal Reserve hikes rate by 25 basis points, says 'additional' tightening possible
Though the policy statement said the U.S. banking system is “sound and resilient,” it also noted that recent stress in the banking sector is “likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.”The document made no presumption that the battle with inflation has been won. The new statement dropped language saying that inflation “has eased” and replaced it with the declaration that inflation “remains elevated.
The outcome of the two-day meeting this week marks an abrupt repositioning of the central bank’s strategy from just two weeks ago, when Fed Chair Jerome Powell testified in Congress that hotter-than-expected inflation would likely force the central bank to raise interest rates higher and possibly faster than expected.
The March 10 collapse of California-based SVB and the subsequent collapse of New York-based Signature Bank highlighted broader concerns about the health of the banking sector, and raised the possibility that further Fed rate increases might tip the economy towards a financial crisis. Powell is scheduled to hold a news conference at 2:30 p.m. EDT to elaborate on the policy decision and the Fed’s views on recent events.
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