Will the banking crisis affect today’s Fed interest-rate decision?
The long-expected rate increase may be tempered by the banking crisis of the last fortnight though some experts are unconvinced.
Later today the Federal Reserve will announce whether it will increase interest rates further. It had seemed a certainty after comments made by the head of the organisation this month, though a volatile banking situation may change that.
Back in early March, Fed chief Jerome Powell told the Committee on Banking, Housing, and Urban Affairs to expect further interest rate rises.
“Over the past year, we have taken forceful actions to tighten the stance of monetary policy. We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do,” said Chairmen Powell during his opening remarks.
However, a lot has changed in the fortnight since then. Silicon Valley Bank and Signature Bank, the former one of the largest in the country, collapsed with problems in part caused by rising interest rates.
The Federal Reserve’s target interest rates are currently at 4.50 to 4.75%, the highest level since 2007.
So will they continue to be increased?
It seems the increases will continue. Economists expect interest rates to rise to a range of 4.75% to 5%. Before the bank collapses there had been discussion of a 0.5-point rate rise though this plan has been tempered.
“The broader macro data shows some further tightening is warranted,” said Michael Gapen, chief US economist at Bank of America.
A careful balancing act will need to be struck between fighting inflation without destroying the US banking system.
The Fed is scheduled to release its rate decision along with its new economic projections at 2 p.m. ET Wednesday. Powell will speak at 2:30 p.m. ET.