Federal Reserve Moves Fed Funds Rate to 4.75% to 5.00% for Its 9th Hike
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Federal Reserve Moves Fed Funds Rate to 4.75% to 5.00% for Its 9th Hike

The Federal Reserve acted today to increase the Fed Funds rate to a target of 4.75% to 5.00%, and said that additional policy firming may be appropriate.

Many observers wanted the Fed to suspend raising rates, in light of the collapse two weeks ago of Silicon Valley Bank and Signature Bank and resulting banking turmoil. Chairman Powell and the committee decided that today’s action was consistent with its dual mandate of controlling inflation and maintaining maximum employment.

The Fed observed that these recent banking developments were likely to result in tighter credit conditions weighing on the economy, including business fixed investment and housing. The impact is unknown, and possibly deflationary over time and, therefore, the Fed may not need to move as high as Chairman Powell had predicted just weeks ago.

The Fed is still targeting an end of year Fed funds rate of 5.10%, implying one more 25 basis point hike and then a pause. In his news conference, Powell indicated at least twice that market expectations about cuts in the Fed funds rate before the end of 2023 are unlikely. He stated they would not be consistent with the Fed’s resolve to maintain rates at an elevated level until it has seen meaningful progress in its fight to get inflation back to a 2% target, measured by the Consumer Price Index (CPI) and core CPI. These indicators remain in the 5.50% to 6% range.

During his conference, Powell noted that distress in the market has been felt by only a small handful of banks and the FDIC has created ample liquidity to address this condition. The banking system overall is strong and resilient. But when queried, Powell did not give much comfort to depositors looking for more certainty above FDIC limits, or to bank shareholders. And, regional banks came off quickly and sharply after the conference ended.

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Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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