The need to continue controlling inflation outweighed the risks of recession and the banking crisis in the decision that the US Federal Reserve, the Fed, took this Wednesday to raise interest rates by a quarter of a point to place them in the range from 5% to 5.25%.
The consumer price index in the American superpower is at 5%, which is just over half the 9.1% reached last June but more than double the pre-pandemic rates, below 2%.
The new rate hike is the tenth ordered by the Fed in the last thirteen months in the fastest series of increases in the last four decades. The last time interest rates exceeded 5% in the US was in the summer of 2007, just before the global financial crisis.
In making the decision to raise rates another 0.25 points, Fed Chairman Gerome Powell and the Fed's Open Market Committee had to take into account the turmoil in the country's regional financial sector, to put it mildly. . On Monday, First Republic became the third bank to be seized by the country's regulators in the past two months, in its case for a hasty sale to JPMorgan. Earlier, in the wake of the Silicon Valley and Signature Bank bankruptcies, the authorities had taken emergency measures to try to curb a contagion that, in view of the subsequent fall of the First Republic, many still fear.
The Fed itself intoned the mea culpa for the lack of reflexes and aggressiveness in the face of the symptoms of weakness that Silicon Valley had been presenting in a context of insufficient supervision requirements in this type of entity since the deregulation approved by Donald Trump in 2019. But, in addition to possible vigilance deficiencies and obvious management negligence, at the bottom of that fall and the two that would come later were the latest and accelerated rises in rates; hikes that reduced the market value of their old mortgages and security holdings, and against which they did not adequately hedge.
Now, Fed officials may consider a pause in raising rates. This is the expectation of analysts and investors, taking into account the risks of entering a recession, already indicated by the Fed itself. The contraction in credit, consumption and contracting derived from the scarcity of money, as well as the delays in new bank failures, supported this thesis before the US monetary authority made its announcement.
