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Fed raises its reference rate by 0.25%

Fed raises its reference rate by 0.25%

The US Federal Reserve (Fed) announced yesterday Wednesday an interest rate hike of 0.25 points to place them between 4.75% and 5%, amid the crisis caused by the unexpected collapse of two main banks in the country and the rescue of a third.

This is the ninth rate hike in a year to combat inflation, although it is less than what the Fed anticipated when the banking crisis had not yet broken out.

He Federal Open Market Committee The Fed’s (FOMC), which made the decision after a two-day meeting, said the “US banking system is healthy and resilient.”

“Recent events are likely to result in tighter credit conditions for households and businesses, and that weigh on economic activity, hiring and inflation. The extent of these effects is uncertain. The committee remains very attentive to inflation risks, ”he said in the note.

The official also predicted that “a certain additional tightening” of his monetary policy may be appropriate to achieve his inflation target, although he stressed that he will continue to monitor the repercussions that it may have.

To try to put a stop to inflation, the Fed began the increases in March 2022 with a timid 0.25. In May it raised rates by 0.5 points and in June it already began a series of increases of 0.75 points, before slowing down to 0.50 last December and reducing them even more, to 0.25, in February.

Silicon Valley was one of the biggest banks for tech companies.  Photo: diffusion.

Silicon Valley was one of the biggest banks for tech companies. Photo: diffusion.

Replicas in Peru

arturo garcia, professor of Economics at ESAN, argues that this decision by the Fed may not necessarily find a critical rebound on the region’s central banks. In Peru, however, he estimates that there will be one or two more rate hikes so far this year, in a gradual slowdown that could reach 3% after the rate plateau in two years.

“While it is true that the Peruvian inflation is at 8%, it is one of the lowest in Latin America. In Colombia it is at 13%; in Chile, 11.5%. Even with higher referral rates. This speaks of the good management of the BCRP in reducing inflationary pressures and the use of tools,” he specified.

Fed and its long fight against inflation in the US

There had been speculation that the Fed would pause rate hikes after the bankruptcy of Silicon Valley Bank (SVB) and Signature Bank, whose situation was worsened by the issuing body’s harsh monetary policies.

Inflation in the US is still well above its 2% target and with a robust labor market. In February, it stood at 6% year-on-year, its lowest rate since September 2021, after falling four tenths compared to January.

Fed has increased the frequency with which it offers currency trading to ensure there are enough dollars in the financial system.

Source: Larepublica

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