Fed could ‘speed up’ interest rate hikes amid inflation
Federal Chair Jerome Powell told the Senate that the central bank will likely continue to raise interest rates amid surges in job growth and inflation.
Damien Henderson, Associated Press
The Federal Reserve is expected to raise its key short-term interest rate by 25 basis points today, continuing its push to curb inflation which has slowed, but remains far above the target that would signal soaring prices are under control.
The bigger question looming as Fed officials meet Wednesday is whether they’ll hint that this latest increase will be the central bank’s final rate bump of the year. Policymakers are waiting to see how much lending tightens following the collapse of Silicon Valley Bank and Signature Bank, which may also slow the economy and curb inflation.
- The Fed could also resume hiking rates later if high prices and a still-hot labor market don’t slow down as expected. The central bank is not expected to hint at any rate cuts this year.
What time does Fed speak today?
The Fed will reveal its decision at 2 p.m.
How many banks have failed in 2023?
Three FDIC-insured banks, Silicon Valley Bank, Signature Bank and most recently First Republic, have collapsed this year. The FDIC took over SVB and Signature and federal regulators said they would guarantee all depositors, even if their account balances were above the $250,000 limit the FDIC promises to insure. Meanwhile, First Republic was seized Monday and sold to JP Morgan Chase which will incorporate all First Republic accounts and purchase most of that institutions’ assets.
Fed rate hike history
At the Fed’s last meeting held March 21 and 22, interest rates inched up 0.25 percentage point to a range of 4.75% to 5%.
The spate of hikes are in sharp contrast to the height of the COVID-19 pandemic when rates hovered near zero as the economy largely ground to a halt. In March 2022, the rate was bumped up to a quarter percentage point. In May, it increased by 0.50 percentage point, followed by four hikes in a row of 0.75% percentage point each. The last hike of 2022 was half a percentage point.
What is the prime rate?
The prime rate sets the level of interest consumers with the best credit pay when they borrow from a commercial bank. It’s linked to the Federal Reserve which establishes the overnight rate for federal funds. That rate then serves as the basis for the prime rate, which stood at 8% on Wednesday.
Will Fed raise rates again?
The Federal Reserve is expected to boost its key short-term interest rate 0.25 percentage point today in its ongoing effort to curb inflation.
Dow Jones rises ahead of Fed May rate announcement
Stocks were continuing to drift higher Wednesday afternoon ahead of what Wall Street hopes will be the last hike to interest rates for a long time. The S&P 500 was up 0.14% after slumping the prior day. The Nasdaq composite ticked up 0.30%, while the Dow Jones Industrial Average was mostly flat in mid-day trading.
−Associated Press−
Good news coming? Fed may hint at a pause in inflation fight
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When is the next Fed rate decision?
The next Fed interest rate decision will be on June 14th.
Fed meeting housing rates
Homeowners who currently have fixed-rate mortgages won’t see any changes. Those who’ve recently purchased a home or are now house hunting are feeling the pinch of higher rates. But mortgage rates have been volatile and are down from their 2023 peak of 6.73% in early March. As of last week, the average rate was 6.43%.
The Fed can impact mortgage rates but doesn’t directly set them, so even with a rate increase, home loan costs may not rise. The expected rate hike on Wednesday has already lifted the cost of a new average 30-year mortgage by $11,160 over the life of the loan, as rate hikes are usually priced into mortgage rates in advance, according to WalletHub.
Housing: With federal reserve interest rates set to rise, how will the housing market be affected?
Bank failures in 2023
First Republic was the third bank failure in two months, overtaking Silicon Valley Bank as the second biggest bank collapse in U.S. history.
SVB’s collapse occurred when struggling tech companies with accounts began taking their money out to cover their expenses, leading SVB to sell bonds that were now worth less because of the Fed’s string of rate hikes. The bank run then accelerated as customers with deposits greater than $250,000, which aren’t FDIC insured, rushed to withdraw their money amid SVB’s capital losses.
Similar bank runs led to the failure of Signature Bank, which played a key role in the cryptocurrency industry, and put First Republic Bank in jeopardy. First Republic received $30 billion in deposits from JPMorgan Chase and 10 other big banks to keep it afloat but ultimately saw its share price plummet when its quarterly results showed depositors had withdrawn over $100 billion. Regulators seized the bank Monday and sold its accounts and most of its assets to JP Morgan Chase.
Federal regulators also intervened with SVB and Signature banks, taking the unusual step of backing all their deposits including those the FDIC was not obligated to insure because they were greater than $250,000. They also created a lending facility that would enable other regional banks to borrow money to cover withdrawals by uninsured depositors if needed.
A Federal Reserve report noted that lax oversight by regulators contributed to SVB’s failure.
Bank failures: How often do they happen?
SVB lobbied Congress for less regulation: Signature Valley Bank wanted fewer regulations
Student loan borrowers vs. SVB depositors:Who deserves a bailout?
First Republic Bank
First Republic Bank became the second biggest bank failure in history when federal regulators seized the institution on Monday and JP Morgan Chase committed to acquiring the bank’s customer accounts and most of its assets.
First Republic had been on shaky ground after the failures of SVB Bank and Signature Bank in March, with account holders and investors worried that it might meet a similar fate since it also had a large number of uninsured deposits. First Republic had also been a major lender to the wealthy, granting them low interest loans that were now of little value.
Eleven larger banks attempted to come to First Republic’s rescue last month, giving it $30 billion. But First Republic revealed in its quarterly report that depositors had withdrawn over $100 billion, a bank run that was accelerated by the ease with which panic can spread through social media.
Investors fled, sending the bank’s shares plunging 75% last week with the stock price down to $3.51 at the close of markets Friday.
First Republic Bank sold: The bank was seized by federal regulators and sold to JP Morgan
− Charisse Jones and Associated Press
What is the rate of inflation?
Inflation slowed in March, according to a measure favored by the Fed, with consumer prices rising 4.2% as compared to the same month a year ago, which was the smallest uptick since May 2021, according to the Commerce Department. March prices fell from 5.1% the previous month and 7% in June which marked a four-decade high.
Core prices, which don’t count volatile items like food and energy and so offer a clearer snapshot of longer trends, rose 0.3%, lowering the annual increase to 4.6%. That was down from 4.7% in February, a revised figure that ticked upward.
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Interest rates today
The Fed’s rate hike in March lifted its federal funds rate to a range of 4.75% to 5%. Today’s anticipated hike would lift the rate to a range of 5% to 5.25%.
