Photo: Governor of the central bank of the United States (US) Federal Reserve, Jerome Powell (AP Photo/Jacquelyn Martin)
Jakarta, CNBC Indonesia -The United States (US) central bank, The Federal Reserve (The Fed) raised its benchmark interest rate by 25 basis points (bps) to 4.75-5.0%.
The Fed kept raising interest rates amid the US banking crisis that rocked the world.
With this increase, the Fed has raised interest rates by 475 bps in its last nine meetings since March 2022. Interest rates of 4.75-5.0% are the highest since September 2007.
The Fed’s decision was announced on Wednesday US time or early Thursday Indonesian time after holding the Federal Open Market Committee (FOMC) meeting.
In its statement, the FOMC explained that the US banking crisis was of great concern to them. However, US inflation remains a key consideration.
US inflation has actually fallen to 6% (year on year/yoy) in February 2023, from 6.4% (yoy) in January 2023. However, inflation is still well above their target of around 2%.
As is known, the last week the US was rocked by a crisis that hit three of their banks. Silicon Valley Bank (SVB), Signature Bank and Silvergate Bank collapsed due to massive withdrawals from their customers.
The bank collapse has also raised concerns that the current high interest rates have had a major impact on banking.
“The Committee continues to monitor future information and will assess its impact on monetary policy,” wrote the FOMC statement, quoted from CNBC International.
“The committee anticipates that additional policy tightening may be needed to sustain stance adequate monetary policy to bring inflation down to 2%,” the statement added.
Fed Chairman Jerome Powell said the FOMC is considering holding off on raising interest rates due to the banking crisis. However, the meeting still decided on an increase because inflation was still strong and the labor market was still hot.
“The process of bringing inflation down to 2% is still long and likely to be steep,” said Powell.
Powell acknowledged that the recent banking crisis was likely the result of tight credit interest rates. He also acknowledged that these conditions could have an impact on the US economy.
“The US banking system is tough and good. What is currently developing is likely to be the impact of tight credit conditions for households and businesses. These conditions will weigh on economic activity, inflation, and the creation of a workforce. The wider impact is not yet known,” he said.
He added that the Fed remains committed to restoring price stability. According to him, it is necessary to maintain public trust so that the Fed’s words are in line with its policies.
CNBC INDONESIA RESEARCH
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