The Federal Reserve on Wednesday enacted a quarter percentage point interest rate increase, while indicating that rate hikes to curb inflation were nearing an end.
It was the Fed’s ninth rate hike since March 2022. The rate-setting Federal Open Market Committee (FOMC) noted that any future increases would depend largely on incoming data.
“The Committee will closely monitor incoming information and assess the implications for monetary policy,” the FOMC said in a post-meeting statement.
The wording was a departure from past statements which had referenced “ongoing increases” to curb inflation.
Stocks rose slightly following the announcement, but then they wavered when Fed Chair Jerome Powell undertook a press conference. Investors appeared concerned by Powell’s comments that the inflation fight still had a way to go and could be “bumpy.”
The rate hike comes as Treasury Secretary Janet Yellen has sought to assure Congress and the banking industry that the U.S. banking system is “sound” and that the overall situation “is stabilizing” following the collapses of Silicon Valley Bank and Signature Bank earlier this month—the second and third largest banking failures in U.S. history after Washington Mutual amid the 2008 financial meltdown that led to the Great Recession.
Yellen, who is herself the former Chair of the Federal Reserve, has described the Fed’s raising interest rates to combat inflation as the core source of Silicon Valley Bank’s problems. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.
However, Democratic lawmakers and some economists have blamed the banks’ collapses on a rollback in 2018 of portions of the 2010 Dodd-Frank law that was put in place after the Great Recession to prevent future banking failures.
On Wednesday, the FOMC echoed Yellen’s assurances, saying, “The U.S. banking system is sound and resilient.”
The committee added, “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.”
