The Federal Reserve announced today its tenth rate increase since last March, raising its policy interest rate by a quarter percentage point. This decision comes just two days after the collapse of First Republic Bank, the second-largest bank failure in U.S. history.
Federal Reserve Chairman Jerome Powell stated, “Without price stability, the economy does not work for anyone. Taming inflation remains the Fed’s top priority.”
Raising interest rates allows the Fed to intentionally slow parts of the economy by making it more expensive for banks to borrow money, and that cost gets passed on to the consumer. According to Mark Zandi, Chief Economist at Moody’s Analytics, “If you got a personal loan, uh, you’re gonna see your rate go up a home equity line of credit. You’ll, you’ll see your rate go up and of course, if you need to borrow money for anything like a new car.”
However, some economists are concerned that the Fed is moving too aggressively in its ongoing effort to fight inflation. Sheila Bair, former FDIC Chair, stated, “You can’t reverse it overnight. And it’s better to hold a steady course than keep ratcheting up these interest rate increases.”
Speaking after their two-day policy meeting, Powell offered clues on whether additional rate increases are likely in the months ahead, stating, “We’re no longer saying we that ‘we anticipate,’ and so we’ll be driven by incoming data, meeting by meeting, and we’ll approach that question in the June meeting.”
The Fed’s decision will have implications for consumers and businesses alike, as higher interest rates can mean increased borrowing costs and slower economic growth.
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