Federal Reserve raises rates again, here is what you should know

On Wednesday, the Federal Reserve raised its benchmark interest rate for the ninth consecutive time, despite the recent collapse of two regional banks causing stress in the banking industry. The quarter-percentage-point increase brings the rate to just under 5%, making it more expensive for consumers seeking car loans or carrying credit card balances. The rate-setting committee voted unanimously, with members indicating that additional rate hikes may be necessary to restore price stability. The Fed anticipates that rates may climb another quarter-percentage point by year-end, according to new projections. Although some observers had urged the central bank to pause its rate hikes, stress in the banking system seemed to ease in recent days, and bank stocks have rallied. Meanwhile, consumer prices continue to climb rapidly, particularly for services such as airline tickets and streaming TV subscriptions, which concern the Fed. Inflation in February was 6%, well above the Fed’s target of 2%. The collapse of Silicon Valley Bank and Signature Bank has caused some to call for an independent probe of the Fed’s role in the bank failures, and the Fed’s oversight will come under review. The collapse of the two regional banks is expected to result in tighter credit conditions for households and businesses and weigh on economic activity, hiring, and inflation. Although tighter credit conditions can assist the Fed in curbing inflation, they also raise the risk of tipping the economy into recession. The Fed, however, is not projecting a recession, and members of the rate-setting committee anticipate the economy to grow 0.4% this year, with the unemployment rate climbing to 4.5%.