The Fed Raises Interest Rates by 25 Basis Points, Highest in 16 Years

Cindy Mutia Annur 04/05/2023 11:09 WIB

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The United States Federal Reserve (The Fed) has again raised its benchmark interest rate by 25 basis points (bps) to a range of 5%-5.25%.

The Fed's Interest Rate (January 2007-May 2023)

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The Fed Raises Interest Rates by 25 Basis Points, Highest in 16 Years

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The Fed's Interest Rate (January 2007-May 2023)

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The United States Federal Reserve (The Fed) has again raised the US benchmark interest rate by 25 basis points (bps) to a range of 5%-5.25%. This interest rate hike is the 10th in less than a year, reaching its highest level in 16 years.

This move comes amid ongoing fragility in the US banking sector, partly triggered by interest rate hikes and following the collapse of three US banks: Silicon Valley Bank, Signature, and First Republic.

Fed Governor Jerome Powell signaled that this interest rate hike may be the last this year. "We're closer or maybe even there," Powell said, as quoted by Reuters on Thursday (4/5/2023).

With this interest rate hike, the Fed abandoned its policy statement that it would "anticipate further interest rate increases as needed" and shifted its post-pandemic economic recovery management policy to a new phase while still paying attention to credit conditions and other economic risks.

At a press conference following the release of the statement, Powell said that inflation remains a primary concern, so it is too early to say definitively that the interest rate hike cycle is over. "We're prepared to do more, with policy decisions from June onward to be made on a meeting-by-meeting basis," he said.

Powell rejected market expectations that the Federal Open Market Committee, which sets policy, would cut interest rates this year. According to him, such a move is unlikely.

"We on the committee see inflation coming down not as quickly as that, it's going to take time," Powell said. "And in that world, if that forecast is broadly correct, it's not appropriate to cut rates this year."

Nevertheless, Powell acknowledged that current policy is tight. He suggested that the central bank may have done enough with interest rate policy, especially considering the growing stresses in the economy, the possibility that credit tightening could slow the economy more than expected, and the Fed's ultimate hope for controlled inflation.

Editor : Adi Ahdiat

"Disclosure: This is an AI-generated translation of the original article. We strive for accuracy, but please note that automated translations may contain errors or slight inconsistencies."