Newsflash: The Federal Reserve boosts the base interest rate by 0.25%

By raising interest rates, the Fed is trying to slow down inflation, which stood at six percent in February. The rise in interest rates is intended to reduce spending on goods and services and bring inflation back to the 2 percent target. But it can also increase the tension in the banks.

Updated projections show that ten of the 18 members of the monetary committee expect another quarter-percentage-point interest rate hike by the end of the year. This is the same figure as in the December projection. But the shift, prompted by the unexpected collapse of Silicon Valley Bank (SVB) and Signature this month, is that the Fed did not say in its latest statement that “continued increases” were likely to be appropriate. The Fed has used this expression in statements since last March. This time he only stated that some further tightening of monetary policy may be appropriate.

The Fed said in a statement that the US banking system is healthy and resilient. But he noted that recent tensions in the banking sector are likely to tighten lending conditions for households and businesses and have an impact on economic activity, hiring and inflation.

V declaration it is not stated that the fight against inflation has been won. The wording that inflation has slowed has since disappeared from the new statement, and replaced it with the statement that it remains elevated. Job gains are robust, according to the Fed.

According to the new outlook, the unemployment rate should rise to 4.5 percent by the end of the year, which is 0.1 percentage point lower than the Fed’s December forecast. The Fed lowered its economic growth outlook to 0.4 percent from the previous 0.5 percent. Inflation should decrease to 3.3 percent by the end of the year. In December, the Fed expected inflation of 3.1 percent by the end of this year.

The outcome of the two-day meeting marks a sudden change in the central bank’s strategy. Just two weeks ago, Fed chief Jerome Powell testified in Congress that higher-than-expected inflation would likely force the Fed to raise interest rates higher and faster than expected, Reuters reported.