AS expected by financial markets, the United States Federal Reserve has hiked interest rates by a quarter percentage points, bringing the benchmark up to 5.25% from a near 0 since March 2022.
“Today, the FOMC raised its policy interest rate by 1/4 percentage point. Since early last year, we have raised interest rates by a total of 5 percentage points in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”
“The Fed’s monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people,” said Jerome Powell, Chair of the Federal Reserve of the United States.
This marks the 10th hike in the said time period.
In effect, the Central Bank’s decision on Wednesday night increases borrowing costs and erodes consumers’ purchasing power, effectively addressing the country’s high inflation which now stands at an annual of 5.0%.
However, Chair Powell highlighted said,
“We are seeing the effects of our policy tightening on demand in the most interest- rate-sensitive sectors of the economy, particularly housing and investment. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation”.
Jerome Powell also highlighted that the U.S. economy slowed significantly last year, with real GDP rising at a below-trend pace of 0.9%.
The labor market remains very tight, but overall, labor demand still substantially exceeds the supply of available workers according to Powell.
It can be recalled that on Monday, JPMorgan Chase acquired embattled bank First Republic after shares plunged despite recent interventions from state regulators and U.S. private banks.
First Republic’s collapse marks the third major U.S. Bank to close in less than 2 months as well as being the second largest bank failure in the country’s history following Washington Mutual’s Bank run in 2008.
Meanwhile, now, the U.S. Central Bank signaled that Wednesday’s increase might be it’s last for the meantime.
