Washington: The US Monetary Policy Committee raised the benchmark interest rate by 25 basis points to 4.75–5.0% in an effort to achieve maximum employment and inflation at a longer-term rate of 2%. It raised rates for the ninth time in a row with the most recent increase being the same magnitude as the one in February.
The increase occurs as its central bank struggles to preserve stability in the banking system while also attempting to regulate inflation, which is much above target following the recent failure of a few banks and the ripple impact on others.
"The American banking system is strong and dependable. Recent events are probably going to make it harder for people to get credit, which will have an impact on hiring, inflation, and economic growth "According to the US Monetary Statement, following the two-day discussion that finished on Wednesday (local time).
The Silicon Valley Bank, a well-known international lender for technology entrepreneurs, failed on March 10 as a result of a bank run, necessitating intervention from the US federal government. Authorities closed the tech lender and gave the US Federal Deposit Insurance Corporation ownership of it (FDIC).
The US monetary policy committee predicts that some "additional policy firming" may be necessary following the most recent rate increase in order to achieve a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.
The statement said, "The Committee will consider the cumulative tightening of monetary policy, the lags with which monetary policy influences economic activity and inflation, and economic and financial developments in evaluating the extent of future rises in the target range.
Going ahead, the Committee's judgements will take into account a wide variety of indicators, including readings on labour market conditions, inflation pressures and inflation expectations, and financial and international developments. Consumer inflation in the US, meanwhile, slowed in February from January's 6.4% to 6.0%, but it is still much above than the target range of 2%. 6.5% and 7.1%, respectively, were the levels in December and November, respectively.
The policy rate of the US central bank is currently in a target range of 4.75–5.0%, which is the highest level in 15 years and, notably, was close to zero in the early months of 2022. Increasing interest rates often helps to control inflation by reducing economic demand.
Although inflation has moderated recently, the process of bringing it back down to 2% is still far off, and the road ahead is likely to be difficult, US Federal Reserve Chair Jerome Powell earlier warned.
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