US Fed delivers small interest rate hike amid global banking turmoil

The quarter-point increase, which was in line with expectations, lifted the target range to 4.75-5 per cent

The Fed’s moves comes after two weeks of market turmoil and the collapse of three regional lenders

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News on the Federal Reserve interest rate hike appears on a monitor at the New York Stock Exchange on Wednesday. Photo: AP

Published: 2:41am, 23 Mar 2023Updated: 8:41am, 23 Mar 2023

The US Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point, but indicated it was on the verge of pausing further increases in borrowing costs amid recent turmoil in financial markets spurred by the collapse of two US banks.

The move set the US central bank’s benchmark overnight interest rate in the 4.75 per cent-5 per cent range, with updated projections showing 10 of 18 Fed policymakers still expect rates to rise another quarter of a percentage point by the end of this year, the same endpoint seen in the December projections.

But in a key shift driven by the sudden failures this month of Silicon Valley Bank (SVB) and Signature Bank, the Fed’s latest policy statement no longer says that “ongoing increases” in rates is likely to be appropriate.

Instead, the policy-setting Federal Open Market Committee said only that “some additional policy firming may be appropriate,” leaving open the chance that one more quarter-of-a-percentage-point rate increase would represent at least an initial stopping point for the rate raises.

“Despite the Fed pressing ahead with a 25 bps rate hike today, we see considerable uncertainty in the path ahead and would downplay the significance of updated economic and dot plot projections in such a fast-moving environment,” said Ashis Shah, chief investment officer at Goldman Sachs.