The Fed raised its policy rate by 25 basis points to a range of 4.75 to 5.00% as expected. The FOMC statement said the US banking system is sound and resilient, but the extent of the effects of recent developments is unclear. The Fed raised the interest rate by 75 basis points 4 times last year. In Dec. 2022, the Fed slowed its interest rate hikes and raised the interest rate by 50 basis points. The Fed raised its policy rate by 25 basis points at the first FOMC meeting in 2023.
Following the Fed's interest rate decision, Fed Chairman Jerome Powell held a press conference. Powell said that the Fed is “strongly committed” to its 2% objective. When asked about a pause, Powell said that they had considered it in the days running up to the meeting.
“We are committed to restoring price stability and all of the evidence says that the public has confidence that we will do so that will bring inflation down to 2% over time. It is important that we sustain that confidence with our actions, as well as our words,” Powell said. He noted that Fed officials do not foresee a rate cut this year.
“The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Powell said. He added that they will closely monitor inflation and the labor market, and that the Fed will raise interest rates further if it needs to fight inflation.
Powell comments on latest developments in banking sector
“Our banking system is sound and resilient, with strong capital and liquidity,” Powell said. Powell also said that management at Silicon Valley Bank “failed badly,” while exposing customers to “significant liquidity risk and interest rate risk.” He added that stronger supervision and regulation is needed to prevent another bank collapse and deposit crisis.
Powell noted strong steps taken by the Fed, the US Treasury Department, and the FDIC show that depositors' savings and the banking system are safe.
