 |
| U.S. Federal Reserve Board Chairman Jerome Powell responds to a question from the news media during a press conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building in Washington, D.C., March 22. EPA-Yonhap |
The U.S. Federal Reserve raised its benchmark lending rate on Wednesday, as it sought to strike a balance between curbing high inflation and averting further upheaval in the commercial banking sector.
The quarter-point increase, which was in line with expectations, lifted the target range to 4.75-5.00 percent at the end of a two-day policy meeting.
While the Fed has expressed commitment to lowering inflation, there have been concerns that higher rates could deepen banking sector turmoil following Silicon Valley Bank's (SVB) rapid collapse.
SVB, to meet liquidity needs, had to sell assets it had expected to hold to maturity and these had lost market value while rates increased.
In a statement on Wednesday, the Fed said recent banking sector developments "are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation."
The policy-setting Federal Open Market Committee (FOMC) added that "some additional policy firming may be appropriate" to get to a stance that is sufficiently restrictive to bring inflation down.
The latest increase was the same size as the central bank's previous rate decision in February, and marks its ninth straight rate hike.
It comes after two weeks of market turmoil and the collapse of three regional lenders.
Wednesday's decision underscores the Fed's determination to tackle inflation, which remains stubbornly above policymakers' long-term annual target of 2 percent despite an effort to lower price increases.
Depositors' savings 'safe'
The implosions of SVB and two other regional lenders pummeled banking stocks around the world last week, with Swiss investment bank Credit Suisse swallowed up by regional rival UBS after its shares sank to a record low.
Wall Street stocks faltered as Fed Chair Powell addressed reporters after the central bank's decision.
Powell said depositors' savings in the banking system are safe, adding that the Fed is "prepared to use all of our tools as needed" to keep the system safe and sound.
He also said the Fed needs to boost supervision and regulation of banks, adding that SVB's management had "failed badly."
But "rate cuts are not in our base case," Powell added.
The combination of hot U.S. economic data at the start of the year and uncertainty in the banking sector had led most analysts to predict the Fed will continue with a more modest hiking cycle than was previously expected.
 |
| A trader reacts as Federal Reserve Chair Jerome Powell is seen delivering remarks on a screen, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 22. Reuters-Yonhap |
More 'dovish' language
Treasury Secretary Janet Yellen said Tuesday that the U.S. banking sector was "stabilizing" after authorities stepped in to protect deposits following the failures of SVB and Signature Bank.
But she conceded that "similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."
Yellen's comments underscored this week's relief rally in the stock markets, along with actions by the Fed and other major central banks to improve lenders' access to liquidity.
On Wednesday, the Fed also updated its economic projections, slightly lowering its 2023 GDP growth projections 2023 to 0.4 percent from 0.5 percent in December.
Median projections for the Fed's benchmark rate at the end of this year were unchanged, while inflation expectations rose slightly.
The Fed's announcement follows on the heels of the European Central Bank's decision last week to raise rates by 0.5 percentage points.
ECB chief Christine Lagarde warned on Wednesday that the eurozone's monetary policymakers "will still have ground to cover to make sure that inflation pressures are stamped out."
She said the recent banking turmoil could add to "downside risks" in the single currency area. (AFP)
![[ANALYSIS] China's ban on Micron tests Washington-Seoul alliance](https://img.koreatimes.co.kr/upload/thumbnailV2/1785a57b07ae45a7b7db49fdf4acd720.jpg/dims/resize/178/optimize)
![[INTERVIEW] Long-awaited extension of Korean Pavilion at Venice Biennale to be pushed forward](https://img.koreatimes.co.kr/upload/thumbnailV2/d8d5090875824ce08a90bb2c5a8f8c05.jpg/dims/resize/178/optimize)
