Fed raises interest rates 0.25%

The Federal Reserve has increased its short-term borrowing rate by 0.25% for the tenth time in a row, despite recent data showing a slowdown in US economic growth. The central bank is focused on tackling inflation, which remains more than double its target rate of 2%. In a statement, the Fed reaffirmed the strength of the US banking system but acknowledged that distress may reduce lending, and that tighter credit conditions for households and businesses could limit economic activity, hiring, and inflation.

The announcement raises the benchmark rate to a target range of 5% to 5.25%, which has contributed to the financial difficulties facing US banks. High interest rates have caused the value of long-term Treasury and mortgage bonds to drop, leaving some banks with holes in their balance sheets. Three of the 30 largest US banks have collapsed since March, with high interest rates contributing to their downfall.

Speaking in Washington, D.C., Fed Chair Jerome Powell said that while the process of getting inflation back down to 2% has a long way to go, the Fed could pause increases at its next meeting. Powell described the omission of a sentence in the announcement on Wednesday as “meaningful,” stating that any decision about additional rate hikes would be “data dependent.”

The Fed’s approach to reducing inflation risks pushing the US economy into a recession and putting millions out of work. The recent government data showed that US economic growth slowed to 1.1% over the first three months of this year, from 2.6% in the previous quarter, due to a decline in business investment and residential fixed investment. US retail sales fell moderately in February but remained solid.

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