Federal Reserve raises interest rate, calls banking system 'sound and resilient'
Well, new tonight, things are about to get even more expensive. The Federal Reserve announced another interest rate increase today. My colleagues and I understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down. The Fed is raising interest rates by a quarter of a percentage point, and that means greater economic pain for people looking to borrow money to purchase things like homes and cars. It's also sending credit card interest rates soaring. For example, if someone makes minimum payments toward the average credit card balance of just over $5,800, they'd end up paying over $8,300 in interest over 20 months. They need again in May and then again in June.
We could start seeing the Federal Reserve pausing these interest rate hikes in the months to come. Meanwhile, Powell has this warning. The process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy. While the Fed did not hold off on raising rates, as some had predicted, the rate hike was less aggressive than prior rate hikes. It comes after the collapse of Silicon Valley and signature banks. Some critics say the rapid rise in interest rates contributed to the failure of those banks and created instability and a lack of confidence in the U.S.
banking system. Our banking system is sound and resilient. Still the problems impacting smaller and mid-sized banks are far from over. First Republic in San Francisco is still struggling despite several large banks pouring in billions of dollars to help. Its stock fell more than 47 percent Monday, with S&P Global downgrading the bank to junk status. That ratings firm concerned the recent $30 billion cash infusion from 11 big banks may not solve its problem. But Wall Street Journal is reporting JPMorgan Chase is leading discussions with the heads of other big banks to make a large cash investment in First Republic to help stabilize the bank.
Similar actions could be warranted if smaller institutions suffered deposit runs that posed the risk of contagion. Keep in mind inflation has fallen significantly since its summer peak, but right now it's triple the Fed's target of 6 percent.
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