US Federal Reserve Delivers Quarter Point Rate Hike Amid Global Banking Turmoil

New Delhi: Refusing to lower guard on a persistently high inflation, the United States Federal Reserve on 22 March 2023 announced a quarter point-hike in interest rates. While hiking the interest rate, the Fed also assured that markets battered by a banking crisis that it has enough firepower to avert a contagion.

The U.S. central bank’s overnight rate hike took it to the 4.75 per cent-5.00 per cent range, a level last seen prior to the 2007-08 global financial crisis. As per the updated projections 10 of 18 Fed policymakers still expect rates to rise another quarter of a percentage point by the end of this year, the same endpoint seen in the December projections, reported Reuters.

However, the Fed’s latest policy statement no longer says that “ongoing increases” in rates will likely be appropriated — this is important in the backdrop of the sudden failures of Silicon Valley Bank (SVB) and Signature Bank. In every policy statement since 16 March 2022, Fed had been maintaining the tone.

The Federal Open Market Committee said only that “some additional policy firming may be appropriate, “leaving open the chance that one more quarter-of-a-percentage-point rate increase, perhaps at the Fed’s next meeting, would represent at least an initial stopping point for the rate hikes.”

In its statement, the US central bank said that the country’s banking system is “sound and resilient”, but the recent developments in the banking sector “are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation”.

The Federal Reserve needs to “strengthen supervision and regulation” of banks, Fed Chair Jerome Powell told a press briefing Wednesday, following the swift collapse of Silicon Valley Bank and the contagion fears it triggered. “At a basic level, Silicon Valley Bank management failed badly,” he said. “They grew the bank very quickly, they exposed the bank to significant liquidity risk and interest rate risk.”

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