The Fed raises its key interest rate again despite the banking turmoil

The Fed raised its rate by a quarter of a percentage point on Wednesday. © Andrew Harnik / AP

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The US central bank (Fed) raised its rate by a quarter of a percentage point on Wednesday, seeking a balance between its fight against inflation and turbulence in the banking sector which, it warned, could "weigh" on the economy. The Fed's main interest rate is now in a range of 4.75 to 5.00%, the highest level since 2006, and the institution expects further increases.

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The Fed warned in a statement that the recent bank crisis was "likely to ... weigh on economic activity, hiring and inflation ». "The magnitude of these effects is uncertain," she said. But savers' money is "safe" and the banking system remains solid, Fed Chairman Jerome Powell said at a press conference, stressing that the institution is "determined to learn from the episode".

Fed officials mostly anticipate additional rate hikes in the coming months, but more broadly evoke, in the statement, "additional actions to strengthen policy," without mentioning rates specifically. Despite the difficulties, the possibility of a soft landing of the U.S. economy "still exists," Powell added, saying the Fed is "trying to find" the right path.

The powerful US central bank was facing a difficult trade-off: continue to raise its main interest rate to curb high inflation or pause, in order to avoid aggravating the banks' difficulties, expectations showing the market's hesitation on the subject.

Concerns after SVB bankruptcy

The recent failures of the US regional banks Silicon Valley Bank (SVB), Signature Bank and Silvergate have created a wave of concern. Governments, central banks and regulators have intervened urgently to try to restore confidence, the best weapon to avoid contagion. "We need to strengthen supervision and regulation" of banks, conceded Powell, who recalled that an investigation by regulators is underway and who has been in favor of conducting an independent investigation.

U.S. Treasury Secretary Janet Yellen told a Senate committee on Wednesday that "the U.S. banking system is sound." "The federal government's recent actions have demonstrated our strong commitment to take the necessary steps to ensure the safety of depositors' savings," she added. "It is important to be clear: shareholders and creditors of failed banks are not protected by the government. And no loss [...] will not be borne by the taxpayer " also stressed Joe Biden's Minister of Economy and Finance.

► Also listen: Today the Economy - Will the Silicon Valley Bank crisis hinder the fight against inflation?

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• United States
• Economy
• Economic crisis