The US Federal Reserve Board on Wednesday decided to raise the federal funds rate by 25 basis points, to a range of 4.75% to 5%, in line with market expectations.
The Fed said in a statement that it is going to temporarily stop raising interest rates in light of the recent turmoil in financial markets, which was caused by the collapse of two US banks.
The US central bank added that inflation remains high, but the banking system is “reliable and stable.”
The decision was taken unanimously. With this increase, the interest rate is at its highest level since 2006.
The Fed had expected inflation this year to be slightly higher than expected in December, at 3.6% from 3.5%, while GDP was expected to decline by 0.4% from 0.5%.
Markets are focused on how the Fed will assess the impact of the banking crisis and therefore its upcoming policy of raising interest rates to protect the economy and continue to control inflation.
The Fed raised interest rates 7 times in 2022 at meetings in March, May, June, July, September, November and December.
The Fed raised interest rates by 25 bps in February 2023, with 6 more meetings left during the year, with the next meeting on May 3rd.
The Fed cut its pace of rate hikes from 50 points last December to 75 points in November, indicating the success of the Fed’s aggressive campaign to slow inflation.
Prior to the monetary tightening campaign, the interest rate in March 2022 was in the range of 0.25% to 0.50%.
