(DCWatchdog.com) – The Federal Reserve has increased its target interest rate on federal funds by 0.25 percentage points, bringing interest rates to their highest level since 2007.
The new hike is the ninth since the Fed started upping the interest rates in March 2022 to combat inflation.
As the Fed maintains its “slowed increases,” the latest one brings its target rate to between 4.75% and 5%.
Economists had widely anticipated the quarter-point hike as part of the Fed’s continuing efforts to tackle inflation, Bloomberg reported, as cited by The Daily Caller.
There were also expectations those would be put on hold because of the recent collapses of Silicon Valley Bank and Signature Bank.
A CNBC report noted that by Wednesday morning, markets expected with 90% certainty that there would be a new Fed rate hike by 0.25 points.
Before the recent bank failures, officials had made it clear the Fed would definitely increase interest rates.
“I think that’s most likely,” commented Peter St. Onge, research fellow in economics at the conservative Heritage Foundation.
“The trade-off for them is higher rates put more stress on banks,” while lower rates guarantee inflation will continue, he told The Daily Caller.
Yet, there is a conflict in the Fed’s goals since fighting inflation by hiking the interest rates contributed to the collapses of Silicon Valley Bank and Signature Bank, according to a CNBC report.
According to Bloomberg, the US government is looking into how to expand the coverage of the Federal Deposit Insurance Corporation (FDIC) to more bank deposits to prevent a financial crisis.
“Our intervention [in the SVB and Signature Bank collapses] was necessary to protect the broader US banking system,” Treasury Secretary Janet Yellen told the American Bankers Association Washington Summit earlier this week.
“Similar actions [to bailing out SVB and Signature Bank] could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” she added.
St. Onge commented that Federal Reserve Chair Jerome Powell “doesn’t want to keep [rates] flat or cut because I think he’s afraid that that would signal distress.”
“People would conclude that the problem is bigger, and they’re trying to paper it over, and sort of let the whole thing quietly go,” he added.
According to E.J. Antoni, an economics research fellow at the Heritage Foundation’s Center for Data Analysis, the Fed’s decision to raise rates will likely lead volatility to persist in the financial markets.
“The Fed has simply become too unpredictable… This is the same Powell who promised that a 75-basis-point hike was ‘off the table’ and then promptly delivered three in a row. After it has walked back so many positions, I have no confidence in predicting this Fed’s actions,” Antoni said.
What is your opinion about how the Federal Reserve keeps hiking interest rates? Is it impacting your life? Share your view by emailing [email protected]. Thank you.
The Fed just raised interest rates to their highest level since 2007 https://t.co/8C68q6ZgTF
— Daily Caller (@DailyCaller) March 22, 2023