The US Federal Reserve raises interest rates by 0.25 percentage point

To combat inflation, the US Federal Reserve (Fed) is raising interest rates for the tenth time in a row. With another interest rate increase of 0.25 percentage point, this is now in the range of 5.0 to 5.25 percent, the Fed announced on Wednesday.

This is the highest value since 2007 – ie before the start of the global financial crisis. The most recent bank collapse in the US – the collapse of the First Republic Bank – has not stopped the Fed from raising interest rates slightly. Now, however, an interest rate break could follow.

In making its decision, the US Federal Reserve had to make a trade-off between alleviating concerns in the banking sector and combating high consumer prices.

In the past year, the Fed raised the policy rate several times by no less than 0.75 percentage point. The central bank had thus set a pace it had not seen in decades. She initiated this interest rate turnaround more than a year ago – when the policy rate was close to zero. Recently, however, the Fed has opted for smaller rate hikes.

According to the forecast published in March, the US Federal Reserve’s decision-makers expect the key interest rate to average 5.1 percent by the end of the year. This value has been reached with the current increment.

Fed co-trigger of the banking crisis

The Fed’s aggressive rate hikes have also caused some of the turmoil in the banking sector. The collapsed banks were insufficiently protected against rising interest rates. For example, these have lowered the market value of their securities holdings.

With the First Republic Bank, another struggling US money house has just collapsed. It was announced a few days ago that the industry leader JP Morgan Chase was buying the troubled bank in a state-coordinated bailout. After the collapse of Silicon Valley Bank and Signature Bank in March, it initially seemed as if the turbulence was over.

The Fed must now provide a balancing act in its monetary policy – as further significant rate hikes could upset the market. At the same time, consumer prices in the US are still too high. Controlling inflation is the traditional task of central banks. (sda/afp)