The Fed raised the interest rate for the tenth time in a row
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The Federal Reserve System (FED) of the USA increased the base rate range by 0.25 percentage points to 5-5.25% per annum. This is the highest rate in 16 years and the tenth increase in a row.
Photo: Reuters 0
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What the analysts said
Before the announcement, the Financial Times wrote that the Fed meeting is taking place at a difficult time for the US economy and financial system, which has recently experienced the collapse of three banks. Fed officials faced the task of restoring confidence in the banking sector. Due to the fall in the shares of several regional banks after the collapse of First Republic, some analysts assumed that the Fed would refrain from raising interest rates as early as May 3, according to Bloomberg.
However, inflation in the US remains higher than the Fed’s target, and previous rate hikes have not had enough of an impact on price growth, which is why most analysts still agree that the Fed will once again raise the rate.
Bankopad in the USA
In early May, California authorities closed First Republic Bank and placed it under the management of the Federal Deposit Insurance Corporation. It will sell all deposits, including uninsured, and other assets of First Republic to the largest US bank, JPMorgan.
First Republic became the third bank to fail in the US in the last two months, after California’s Silicon Valley Bank and New York’s Signature Bank.
One of the reasons for the banks’ problems was the aggressive increase in the Fed rate in 2022 to combat inflation — from 0−0.25 to 4.5−4.75%. Significant volumes of bank assets were kept in government bonds and mortgage bonds, the value of which fell sharply against the background of the rate increase.
As a result, the cost of funding for banks increased, the margin decreased, and they could not cope with the outflow of client funds from deposits.
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Author: 
Editor of the news feed Yaroslav Holoborodko Writes on the topics: Macroeconomics, stock market, cryptocurrency
- Fed
- Accounting rate
- USA
Source: Ministry of Finance
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