Fed Hikes Rates by 25bps, Gives US Banking Assurances
The exterior of the Federal Reserve building in Washington, D.C.
The Federal Reserve raised its benchmark interest rate today (March 22, 2023) by 25 basis points in response to growing concerns about elevated inflation and an overheating economy.
The decision comes hot on the heels of the recent failures of Silicon Valley Bank (SVB) and Signature Bank. The collapses of both institutions highlighted the fragility of the financial system and the importance of sound monetary policy.
In a statement, The Federal Reserve Committee sought to reassure the public. It said: “The U.S. banking system is sound and resilient. 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.”
The decision to hike rates is a clear indication that the Fed is taking a proactive approach to maintaining the stability of the financial system. By raising interest rates, the Fed is attempting to rein in inflation and prevent the economy from overheating, which could lead to further instability in the financial sector.
At the same time, the move also has the potential to impact the broader economy. Higher interest rates will make borrowing more expensive, which could reduce consumer and business spending. However, the move will benefit savers, who will earn higher interest rates on their savings accounts and other investments.
Inflation in the U.S. remains high despite some recent disinflation. The Consumer Price Index (CPI) cooled from 6.4% in January to 6.0% in February. The Committee said it remains “highly attentive” to inflation risks and is still committed to its 2% target in the longer run.
The guidance we give our clients remains the same. Invest in blue chip stocks and take advantage of the rising interest rate environment with some short-term fixed-income securities such as bonds and Guaranteed Investment Certificates.
As always, if you have any questions about today’s Market Update, you can call us at 604-643-0101 or email cashgroup@cgf.com
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