Turbulence in the banking sector could “weigh” on the economy, nevertheless warned the US central bank.
Published update
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On alert, due to the crisis of confidence affecting some regional banks, the US central bank (Fed) raised its key rate by only 0.25% on Wednesday evening. Still maintained at practically zero a year ago, the rate offed funds» is thus increased between 4.75% and 5%. This is the cost at which the Fed lets banks lend each other very short-term liquidity.
The new increase in credit prices comes despite the turbulence caused by the bankruptcy of three regional banks since the beginning of the month, under the effect of massive withdrawals of deposits. Some had judged that the central bank would not dare to raise its key rate while at the same time it is stepping up its efforts to provide liquidity to banks in order to preserve the stability of the financial system. On the other hand, it is possible that without the failure of Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank, the Fed would have dared to raise the “fed funds» of 0.50%.
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The statement from the Monetary Committee specifically notes that “recent developments are likely to result in tighter credit conditions for households and businesses and weigh on economic activity, hiring and inflation“. The press release adds that further rate hikes are being considered in the coming months.
Most of the signals given by the American economy since mid-December, the date of the previous meeting of the Fed’s monetary committee, indeed indicate that demand remains on the whole stronger than expected, despite the rate hikes carried out since a year. Consumption is relatively sustained, especially in the services sector. The high level of hiring (on average more than 350,000 new jobs every month since December) and very low unemployment, at 3.6%, maintain tensions conducive to wage increases higher than productivity gains.
The Fed’s medium-term objective is still to bring inflation back to around 2%. However, according to the consumer price index for February, inflation over the last twelve months was 6%.
