Despite Silicon Valley Bank’s implosion, the Federal Reserve has elected to keep tightening monetary conditions in the United States.
The Federal Reserve is pushing on in its fight against inflation.
The U.S. central bank announced today during the Federal Open Market Committee that it would be raising federal interest rates by 25 basis points, bringing them to a range of 4.75% to 5%.
After being criticized for not taking inflation fears seriously, the Fed began aggressively hiking federal interest rates in March 2022. By doing so, the central bank raised the cost of borrowing, which in turn strengthened the value of the U.S. dollar. At first the Fed raised rates at a fast pace—enacting multiple 75 basis point raises in quick succession—throughout 2022, but slowed down at the end of the year, only raising rates by 50 basis points in December and 25 basis points in February 2023.
Nevertheless, according to the latest CPI print, inflation is still at 6% year-on-year, well above Federal Reserve Chair Jerome Powell’s oft stated goal of 2%. Powell indicated on March 7 that the central bank was therefore considering a resumption of aggressive rate hikes.
However, the collapse of Silicon Valley Bank (and distress of other regional banks) prompted concerns about the resiliency of the U.S. banking sector in a high-interest rate environment, as the Federal Reserve was forced to step in and guarantee depositors would be made whole.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and several other crypto assets.
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