North Cook News

Despite the recent collapse of three U.S. regional banks, sending financial markets into a tailspin, the Federal Reserve’s policy-making committee voted unanimously to boost its target rate another 25 basis points higher on Wednesday.

The hike represented the ninth consecutive rate increase since the Fed embarked on its most aggressive monetary tightening program in 40 years in an effort to tame inflation. The rate is now set between 4.75% and 5.00%, its highest level since October 2007.

In its post-meeting statement, the committee recognized the risks associated with raising the rate while recent developments had already worked to tighten financial conditions, noting that “the extent of these effects is uncertain.” The statement revised its prior language of “ongoing increases … will be appropriate” to “some additional policy firming may be appropriate,” an indication that certainty around additional rate hikes has eased.

It was not two weeks ago that Wall Street had been contemplating the likelihood of a 50-basis-point increase given reports from the first two months of the year showing more robust growth than expected, with January and February job gains accelerating, and reacceleration of both consumer spending and incomes. At that time, most estimates were for rates to rise by 75 basis points over the year.

In the accompanying statement of economic projections, however, the median estimate of committee members of the ultimate, or terminal, target rate was 5.1%, or a range between 5.00% and 5.25%, which implies the committee expects to raise rates only once more at a future meeting.

In his post-meeting press conference, Federal Reserve Chairman Jerome Powell noted that recent bank troubles would likely lead to a tightening of financial conditions “in the same way as rate hikes do,” suggesting that the expectations for future rate hikes by the committee could be softened — although the path and timing of such tightening was not outlined.

Asked about financial stability risks originating from the commercial real estate market, where smaller regional banks hold a disproportionate share of loans that will begin to roll over this year and next, Powell waved off any similarity with the conditions that prompted the failure of Silicon Valley Bank, Signature Bank and Silvergate Bank, stating “the banking system is strong, it is sound, it is resilient, and well-capitalized.”

Original source can be found here