The US Federal Reserve raises interest rates by 0.25 percentage points

It raised the key rate by a quarter of a percentage point to the new range of 4.75 to 5.0 percent on Wednesday. The provisional interest rate peak should therefore soon be reached. Because the monetary watchdogs are aiming for an average level of 5.1 percent in their updated outlook for the end of the year – just as they had already targeted in December.

At the same time, they deleted a passage from their text according to which further interest rate hikes should be appropriate. Instead, they are now saying that “some additional monetary tightening” might be in order. Futures markets put the probability of another hike at the May meeting at 62 percent.

The problems of regional banks in the USA, such as the Californian SVB, which has slipped into bankruptcy, recently gave rise to speculation that the Fed could now pause after around a year of interest rate hikes. Because the difficulties of the financial institutions are also considered to be a result of the rapidly increasing interest rates to combat inflation. Despite a decline to 6.0 percent, it was still well above the Fed’s target of 2.0 percent.

“In view of the inflation outlook, the US Federal Reserve is likely to stick to its decision not to cut interest rates this year for the foreseeable future,” says LBBW economist Elmar Völker. According to the chief economist at the state development bank KfW, Fritzi Köhler-Geib, the central bank is currently in a tricky situation: “With its interest rate decision, the Fed is walking the fine line of continuing the fight against rising prices while at the same time maintaining financial stability in the banking sector.”

US Treasury Secretary Janet Yellen recently made progress in stabilizing the American banking industry. The former head of the central bank cited the latest support measures as the reason for this. In the case of smaller financial institutions, however, further aid measures could be necessary if there was a rush of customers to withdraw their deposits. Such so-called bank runs can also lead to upheavals at other institutions if customer confidence dwindles. However, the risk of further bankruptcies has been contained.