WASHINGTON: The US monetary policy committee, seeking to achieve maximum employment and inflation at the rate of 2 per cent over the longer run, hiked the key interest rate by 25 basis points to 4.75-5.0 per cent at its latest two-day review meet.
The latest hike was the same size as its previous rate increase in the February meeting and marked its ninth straight rate hike.
The hike comes amid the dilemma faced by its central bank on inflation targeting and on maintaining banking sector stability – the former is way above target and the latter is shaky after the recent collapse of a couple of banks and the contagion effect on others.
“The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation,” the US monetary statement said, after the two-day deliberation that ended Wednesday (local time).
“The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks,” it added.
A prominent global lender in the world of technology startups, the Silicon Valley Bank collapsed on March 10 after a run on the bank, forcing the US federal government to step in. Regulators shut down the tech lender and put it under the control of the US Federal Deposit Insurance Corporation (FDIC).
After the latest hike in rates, the US monetary policy committee anticipates that some “additional policy firming” may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 per cent over time.
“In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” it added.
Going ahead, the Committee’s assessments will take into account a wide range of information, including readings on labour market conditions, inflation pressures and inflation expectations, and financial and international developments.
Meanwhile, consumer inflation in the US moderated in February to 6.0 per cent from 6.4 per cent the previous month, but the numbers are still way above the 2 per cent target. It was at 6.5 per cent in December, and 7.1 per cent the month before.
The US central bank’s policy rate, which is now in a target range of 4.75-5.0 per cent, the highest in 15 years, and notably, it was near zero in the early part of 2022.
Raising interest rates typically help in cooling demand in the economy and thus helps in managing inflation.
Despite inflation moderating in recent months, the process of getting it back down to 2 per cent is still a long way away and the path was likely to be bumpy, US Federal Reserve Chair Jerome Powell earlier cautioned. (ANI)