WASHINGTON—The Federal Reserve raised its key short-term interest rate by a quarter percentage point Wednesday, pushing ahead with its aggressive campaign to tame inflation despite financial turmoil following Silicon Valley Bank’s collapse.
But acknowledging the crisis will constrain bank lending and weaken the economy and inflation, Fed officials are now forecasting just one more rate hike this year and even that move is uncertain,
The Fed is anticipating another quarter-point increase to a peak range of 5% to 5.25%, in line with its December estimate and lower than the level markets expected before SVB’s meltdown, according to the officials' median estimate.
"You can think of (the crisis) as being the equivalent of a rate hike and perhaps more than that," Fed Chair Jerome Powell said at a news conference.
He added that "it's too soon to tell" how much the stricter bank lending will hobble the economy and tame inflation but said it could be more significant than expected and the Fed "may have less work to do."
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"It's really just a question of not knowing at this point," he said
In a statement after a two-day meeting, the Fed acknowledged recent strains in the nation’s banks and said they will soften the economy but added the financial system is stable.
“The U.S. banking system is sound and resilient,” the Fed said. “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation. The extent of these effects is uncertain.”
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Powell said the transfer of deposits from midsize banks to larger ones has moderated and no banks are displaying the troubles that plagued Silicon Valley Bank, calling it "an outlier."
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