US rates rose by another 25 basis points at the Federal Open Market Committee’s March meeting as policymakers continued to take action to curb inflationary pressures.
- The federal funds rate was raised to a range of 4.75% to 5%
- Inflation is forecast to fall to 3.3% by the end of 2023
- The Fed emphasised that the US banking system remained resilient
US rates rose by another 25 basis points at the Federal Open Market Committee’s (FOMC’s) March meeting as policymakers continued to take action to curb inflationary pressures. This was the Federal Reserve’s (Fed’s) ninth consecutive rate increase, which took the key federal funds rate to a range of 4.75% to 5%. Looking ahead, there are signs that US interest rates could be approaching their peak: Fed forecasts suggest that the federal funds rate will end the year at 5.1%.
“We have to bring down inflation to 2%”
(Fed Chair Jerome Powell)
Fed Chair Powell insisted that the need to cool inflation remained paramount, saying: “We have to bring down inflation to 2% … There are real costs to bringing it down to 2% but the cost of failing is much higher”. The annualised rate of consumer price inflation in the US eased from 6.4% to 6% in February, and inflation is forecast to fall to 3.3% by the end of the year.
Chair Powell acknowledged that the recent collapse of Silicon Valley Bank (SVB) and Signature Bank in the US could hamper economic growth in the near term, commenting: “Events in the banking system … are likely to result in tighter credit conditions for households and businesses”. Nevertheless, the central bank emphasised that the US banking system remained “sound and resilient”. The Fed downgraded its expectations for economic growth this year from 0.5% to 0.4% in 2023 and from 1.6% to 1.2% in 2024.
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