Despite worries that rising borrowing costs would exacerbate the turbulence currently plaguing the banking system, the Federal Reserve continued its year-long battle against high inflation on Wednesday by hiking its main interest rate by a quarter point.
“The U.S. banking system is sound and resilient,” the Fed said in a statement after its latest policy meeting ended.
The Fed issued a warning at the same time, stating that the financial turmoil brought on by the failure of two significant banks “is likely to result in tighter credit conditions” and “weigh on economic activity, hiring, and inflation.”
The central bank also hinted that its aggressive streak of rate increases is probably coming to an end. It took off a clause that had previously stated that it would keep hiking rates at subsequent meetings from its statement. It now says “some additional policy firming may be appropriate,” which is a weaker promise of future increases. (Tramadol)
The policymakers also predicted that they anticipate increasing their key rate just once more, from its new level of around 4.9% to 5.1% matching the top level they had predicted in December. This prediction was made in a series of quarterly projections.
Nevertheless, the Fed used some wording in its most recent announcement to suggest that the struggle against inflation is still far from over. It stated that hiring is “running at a robust pace” and “inflation remains elevated.” It removed a phrase, “inflation has eased somewhat,” that it had included in its statement in February.
Speaking at a news conference Wednesday, Chair Jerome Powell said, “The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.”
