Federal Reserve officials raised interest rates by a quarter-point while they noted that bank turmoil could help slow the economy.
Federal Reserve officials raised interest rates by a quarter-point on Wednesday as they tried to balance two conflicting problems: the risk that inflation could remain rapid and the threat that turmoil in the banking system could slow the economy drastically.
The Fed on Wednesday pushed interest rates to a range of 4.75 percent to 5 percent, and officials forecast one more rate increase in 2023 though they hinted even that was uncertain. In doing so, policymakers tried to signal that they remained focused on wrestling down price increases but were also paying attention to financial threats.
“In assessing the need for further hikes, we’ll be focused on incoming data and the evolving outlook, and in particular on our assessment of the actual and expected effects of credit tightening,” Jerome H. Powell, the Fed chair, suggested at his post-meeting news conference.
The Fed’s statement said that some additional rate moves “may be” warranted, and Mr. Powell emphasized that “may” was crucial: Officials do not know that yet.
His comments underlined that the outlook for whether rates would rise further — and, if so, by how much had been made uncertain by turmoil in the banking industry that could make loans harder to come by, slowing the economy.
Officials forecast that next year they would lower rates more slowly than they had anticipated, so that rates linger at 4.3 percent by the end of 2024, up from 4.1 percent. That suggested that the fight for stable inflation could be a longer and more gradual one than many had expected even a few months ago, though the outlook is complicated by the bank turmoil.
The forecasts and Mr. Powell’s remarks together underlined that his central bank is confronting a complicated moment — and trying to buy itself the time to decide how to react.
The Fed has raised interest rates at the fastest pace since the 1980s over the past year to try to cool a hot economy. Yet inflation has been surprisingly stubborn, and the job market remains strong. Those facts would likely have called for a more aggressive Fed response.
But high-profile bank collapses in recent weeks have underscored the risk that rapid Fed rate moves could stoke financial instability. Silicon Valley Bank, which failed on March 10, did so partly because it had amassed big losses on its portfolio of securities as interest rates climbed. And even more critically, the bank problems threaten to weigh on lending and spending, which ramps up the risk of a recession.
“The bottom line is: Credit conditions are going to tighten, and the Fed is acknowledging that,” said Diane Swonk, the chief economist at KPMG. The Fed “would like a slow cooling,” she added. “They just don’t want a deep freeze. And this increases the chances that the economy falls through the ice.”
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