The central bank hiked interest rates again despite the chaos in the banking sector

The central bank hiked interest rates again despite the chaos in the banking sector

The US Federal Reserve has been raising interest rates to combat high inflation. Like the European Central Bank last week, central bank policymakers in Washington are unfazed by recent turmoil in the banking sector.

Interest rates will rise again by a quarter percent. As a result, interest rates have reached their highest levels since 2007. By making debt more expensive, the central bank has been trying to control demand in the economy for some time, which should control inflation. This is now the ninth consecutive rate hike.

Major Concerns About Banking Sector

However, investors have been very bullish on the banking sector in recent times. These were caused by the collapse of US banks Silicon Valley Bank and Signature Bank. As interest rates have risen sharply in the US in the short term, problems have arisen in regional banks. Some analysts, such as Goldman Sachs, thought the Fed might avoid further interest rate hikes because of the volatility.

However, the country’s banking system remains “sound and resilient,” according to a US Federal Reserve report. At the same time, policymakers warn that recent developments “will lead to tighter credit conditions for households and businesses.” The situation may also have an impact on economic activity, the labor market and inflation. But it is still not easy to predict what it will look like.

Further rate hikes are possible

Federal Reserve Chairman Jerome Powell later said more rate hikes were possible at a press conference after the interest rate decision. This appears to be a clear sign that the central bank is confident that its effort to control inflation will not ignite a potential banking crisis. At the central bank’s meeting, a possible pause in interest rate hikes was discussed, but ultimately there was no reason for the central bank to do so. An interest rate cut is definitely not on the cards this year. According to Powell, central bank policymakers certainly agree.

The ECB decided last week to continue raising interest rates. But a lot has happened in the banking industry since then. For example, the ailing Swiss bank Credit Suisse, which has been plagued by scandals for some time, had to be rescued by Swiss rival UBS late last week. UBS is the bank headed by former ING CEO Ralph Hamers.

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