JUST IN: The Federal Reserve is raising interest rates by 0.25%, a decision that comes after eight consecutive rate hikes over the past year.
That is partly because the Fed’s own actions to curb inflation. The problems that sparked the meltdowns were distinct to each of the two failed lenders, but higher interest rates had put pressure on both — as they have across the financial industry.
By raising its key federal funds interest rate, the Fed sets off a chain reaction of rate increases in other parts of the economy, making it more expensive to borrow and invest and thus cooling demand for goods and services. That is precisely the central bank’s desired outcome in its fight against inflation. The Fed has hiked its effective rate from near zero a year ago to more than 4.5% today. After its eight consecutive increases, consumers now face higher borrowing costs in a range of places, from credit card interest rates of nearly 20% to auto loan rates of about 6.5%.
“They’re saying, ‘We have to weigh that inflation fight versus the banking system and adding more stress in an already stressed system,’” Michael Antonelli, managing director at Robert W. Baird & Co. financial services group, said earlier this week of Fed officials. “It’s just not easy for them right now.”
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