…the Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent.The Federal Open Market Committee in a post-meeting statement on Wednesday. The Fed raised a key borrowing rate for the ninth consecutive time.
Why It Matters: The U.S. Central Bank raised borrowing rates by a quarter percentage point as an effort to slow inflation. Unlike previous rate hikes, however, the committee noted that future increases are not guaranteed and will depend on incoming data – particularly in light of recent banking chaos. Bottom Line: Borrowing costs will rise. The Fed impacts the “federal funds rate” – the overnight lending rate between banks – and this is often used as a barometer for other loans, like credit cards or car loans.
Looking Ahead: Banks use the Fed’s borrowing rate to lend money to people. Since the collapse of SVB has signaled some uncertainty, banks may scale back on how much money they are willing to loan. The Federal Reserve Chairman, Jerome Powell, said, “We’re looking at what’s happening among the banks and asking, is there going to be some tightening in credit conditions. In a way, that substitutes for rate hikes.”
by Jenna Lee,