04 May 2023
If you are covering the Federal Reserve’s decision to raise interest rates, please find below a comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
"The Federal Reserve has announced another 0.25% hike bringing the interest rate to the highest since September 2007. This move may be the last rate hike of the current cycle but it is still makes this the most aggressive rate hiking campaign since the 1980s.
"The decision will have been carefully weighed as on the one hand recent economic data suggests that inflation remains elevated, particularly in the services sector, which needed to be slowed. But front of mind will have been the fact the US banking system has experienced significant turbulence in recent months, with four banks collapsing since early March.
"The Federal Reserve raised interest rates in March amidst the uncertainty surrounding the failures of Silicon Valley Bank and Signature Bank and JPMorgan's recent acquisition of First Republic has brought a sense of relief to the banking sector but the risks may not entirely be in the rear view mirror so opting to continue rate hikes will have been carefully considered. Banks are still grappling with losses on long-term securities, which could affect their lending decisions and force them to be cautious over the next few weeks.
"Regardless of the Fed's future moves, it is clear that the current tightening cycle has exposed vulnerabilities in both the financial markets and the economy. With the latest rate hike, the central bank aims to strike a balance between managing inflation, ensuring financial stability, and responding to the evolving economic landscape. Future policy decisions will depend on the resilience of the US economy and the effectiveness of these rate hikes in addressing inflationary pressures."
