Stress hitting the banking system by Fed raises interest rates again

 

The Federal Reserve raised interest rates for the ninth time in a row on Wednesday 22/03/2023 , opting to continue its campaign against high inflation despite stress in the banking industry following the collapse of two regional banks.

Fed policymakers voted unanimously to raise their benchmark interest rate by a quarter percentage point to just under 5%, which will make it more expensive for people seeking car loans or carrying a balance on their credit cards.

Stress in the banking system appeared to ease in recent days. Some observers had urged the central bank to pause its rate hikes, at least temporarily, in order to assess the fallout from the collapse of Silicon Valley Bank and Signature Bank earlier this month.

KEY TAKEAWAYS

• Central banks cut interest rates when the economy slows down in order to reinvigorate economic activity and growth.
• Rates go up when the economy is hot.
• The goal of cutting rates is to reduce the cost of borrowing so that people and companies are more willing to invest and spend.
• Interest rate changes spill over to many facets of the economy, including mortgage rates and home sales, consumer credit and consumption, and stock market movements.
• Interest rates and inflation have a direct relationship, which means that rates rise in order to keep inflation in check.