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  • Writer's pictureMatt Oberholzer

Federal Reserve Raises Rates & Discusses Banking Concerns

Updated: May 8, 2023

It's Fed day — and it's a big one. The central bank decided to raise interest rates by a quarter-point, continuing its fastest hiking cycle in decades.

The decision today marked the Fed’s ninth consecutive rate increase over the past year. It will bring its benchmark federal-funds rate to a range between 4.75% and 5%, the highest level since September 2007.

The continuation of interest rate hikes shows that Jerome Powell and the Federal Reserve are committed to lowering inflation back to their long-term target of 2%.

By raising the rates by a quarter-point rather than a half-point, the Fed is showing that they are taking challenges which the banking industry is facing into consideration, but that they do not believe that the banks are too weak to deal with continued rate increases.

Officials now expect inflation to close the year slightly hotter than previously projected, with inflation ending the year between 3.5% and 4%. In the press conference today, Jerome Powell was asked if we could expect rates to decline by year-end. His response was, “Rates cuts are not in our base case.” Despite these comments, the bond markets indicate that many investors are anticipating a cut before year end. We are taking the fed at their word and do not expect rates to be lowered this year.

With continued rate increases, we should expect higher unemployment, slowed economic growth and slower commercial lending. However, we do not anticipate a string of additional banks failures. Jerome Powell stated, “Our banking system is sound and resilient, with strong capital and liquidity. We will continue to closely monitor conditions in the banking system, and are prepared to use all of our tools, as needed, to keep it safe and sound.”

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