The American central bank continued to tighten monetary policy. Nevertheless, the US Fed decided to continue tightening its monetary policy. At the Federal Open Market Committee (FOMC) meeting, officials decided to raise interest rates in the US by further 25 basis points.
Thus, the reference interest rate is now at the highest since 2007, i.e., 4.75 to 5 percent.
Such a decision was expected since the main dilemma of economists and analysts was whether the Fed should continue the fight against inflation or focus on the current banking crisis in the US and direct its activities towards ensuring sufficient liquidity. The increase of 0.25 percent practically represents a compromise between these two paths.
This is the ninth time in a row that the Fed has increased the key interest rate, and with the latest decision, the total increase in interest rates since mid-2022 has reached 400 basis points.
Some of the business community predicted that the Fed might take a break from its monetary tightening cycle this month, but most agreed that such a decision could cause panic in the markets rather than calm them.
Fed President Jerome Powell said in his address that there was talk of a break at the meeting but that a strong consensus made the decision on a new increase.
The Fed has been considering tougher rules for mid-sized banks recently to avoid a repeat of the bank collapse after the bankruptcy of Silicon Valley Bank (SVB) forced authorities to intervene. The Financial Times reported that the US central bank is evaluating the capital and liquidity regulations mandated on banks, particularly those with assets ranging from $100 billion to $250 billion.
The interest rate increase in Europe
The European Central Bank continued to increase the reference interest rate last week, by 50 basis points, with the prediction that inflation will remain above the given corridors for a long time.
Although there was talk at the last minute about the possibility of the ECB abandoning a new jump in interest rates due to events in the global banking market in Frankfurt, they decided to fulfill what they announced after the February meeting.