In the United States, the Federal Reserve continues to raise rates despite the financial crisis and the risk of recession.

Despite the financial crisis affecting regional American banks, the Federal Reserve (Fed), America’s central bank, on Wednesday, March 22, increased interest rates by a quarter point. They are now between 4.75% and 5%, their highest level since 2007. This is the ninth consecutive year of increases in which the Fed admitted there was no inflation. “temporary” and abandoned the free money policy that prevailed after the Covid-19 pandemic.

In early March, the institution’s president, Jerome Powell, indicated that he would raise rates by half a point due to persistent inflation (6% annual rate). The banking crisis led to an interim decision.

Mr. Powell began his opening remarks about bank failures, including Silicon Valley Bank, by saying that the financial system was sound and that his bank would step in again if necessary to protect savers. “Basically, the management of Silicon Valley Bank has seriously failed”Mr. Powell said, blaming interest rate and liquidity risks “important” : “We are ready to learn from this episode and work to prevent similar events from happening again. He added that the bank had not taken the necessary corrective measures despite repeated interventions by the San Francisco Fed.

Financial security is guaranteed

This statement was not intended to imply that the fight against inflation should be stopped in order to prevent a financial crisis. In contrast, Mr. Powell sought to link the two entities, explaining that with financial security in place, the Bank could continue to fight to keep inflation below 2%. Mr. Powell used the term “disinflation” in his previous press conference, but remained concerned about rising prices for non-housing services caused by labor shortages.

This diagnosis does not mean that the banking crisis will not affect the economy, on the contrary. Mr. Powell felt it was having an effect “equivalent” increase the rate by at least a quarter point. “Recent developments should weigh on credit conditions for households and businesses and weigh on economic activity, hiring and inflation.”, – said in the press release of the Federation. Clearly, the banking crisis plus 0.25 point growth has as much of a limiting effect on the economy as the originally projected half point growth. “The Fed raised rates, as did Silicon Valley Bank.” sums it up The Wall Street Journal.