Federal Reserve to make key interest rate decision amid banking turmoil

The US Federal Reserve is set to make a key decision Wednesday on whether to continue its monetary tightening campaign or pause interest rate hikes in the face of the worst banking turmoil since the 2008 financial crisis.

The rate decision will be announced at 2:00 pm ET Wednesday after the conclusion of a two-day meeting of the Federal Open Market Committee, after which fed Chairman Jay Powell will hold a press conference.

In a sign of how much the government’s takeover of two bankrupt banks changed the Fed’s calculation, politicians discuss whether to raise rates by a quarter of a point or not at all. At the beginning of the month, Powell floated the idea that the Fed would accelerate the pace of rate hikes to half a point.

interest rate The decision will be accompanied by a revised set of forecasts for the further development of monetary policy until 2025, as well as forecasts for growth, unemployment and inflation.

The US central bank last released officials’ estimates in December, when most believed the federal funds rate would peak in the 5 to 5.25 percent range. It is currently hovering between 4.50% and 4.75% after returning to a more traditional quarter-point advance in February after several months of stronger gains.

Another quarter-point move on Wednesday would raise interest rates to a new target range of 4.75 to 5 percent.

The debate over the Fed’s next move began as officials grappled with acute uncertainty about the economic outlook following the collapse of Silicon Valley Bank and Signature Bank earlier this month.

In an attempt to stem the contagion among midsize lenders, the central bank, along with the Treasury and the Federal Deposit Insurance Corporation, intervened aggressively by guaranteeing the deposits of the two bankrupt banks. The Fed also launched an emergency facility to help creditors more broadly.

Treasury Secretary Janet Yellen on Tuesday said authorities ready to take the next step strengthen the financial system where necessary, including providing government guarantees to smaller creditors.

Her comments followed Sunday’s announcement from the Fed and five other leading central banks that they would switch to improve access to USD liquidity following a forced takeover by UBS Credit Suisse brokered by Swiss officials over the weekend.

On Wednesday, Republican Senator Rick Scott of Florida and progressive Democrat Elizabeth Warren of Massachusetts introduced a bipartisan bill that would replace the Fed’s in-house investigator with an investigator appointed by the president. Warren has also teamed up with other lawmakers to demand tighter regulation of the banking sector.

The Fed’s interest rate decision is complicated by a lack of clarity about whether the world’s authorities have done enough to save the banking system from further infection, and how severe the economic shock will be from the departure of midsize lenders.

Those advocating a pause argue that the central bank could further disrupt an already volatile environment by continuing to raise rates again, and that the coming credit crunch could lead to a deeper recession.

Still, supporters of further rate hikes say economic conditions don’t need a pause for the time being, especially after strong labor market and inflation data released after the February policy meeting.