The Federal Reserve is raising its key interest rate by 0.25% continuing its crusade against inflation while warning that recent instability in the banking sector could weigh on the economy.
This is their ninth consecutive rate hike and has raised the benchmark federal funds rate to a range of 4.75% to 5%. Fed officials said in a statement after the meeting that the “U.S. banking system is sound and resilient.”
After a series of collapses and rescues both domestic, such as SVB, and foreign, such as Credit Suisse, the Fed warned that “recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on the economic activity, hiring, and inflation.”
By raising the benchmark rate, the Fed has set off a chain reaction of rate increases throughout the economy, which will make it more expensive to borrow and invest. The Fed hopes that these increases will help to cool the economy down in its quest to lower inflation.
The Fed also released its quarterly economic projections after their two-day meeting, which includes forecasts on inflation and rate hikes through 2025. This current update foresees inflation remaining at a higher level for 2023 than previously expected. The unemployment level is expected to rise to 4.6% from 3.6% last month.