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Home Economy

FOMC raises rates by 25 basis points

May 3, 2023
Reading Time: 2 mins read
FOMC raises rates by 25 basis points

Fed Chairman Jerome Powell speaks to reporters following the FOMC's announcement in May.

The Federal Open Market Committee today announced it would raise the target range for the federal funds rate by 25 basis points to 5% to 5.25%. The decision marked the 10th consecutive increase. However, the FOMC did not indicate whether members believe further increases would be necessary, unlike in previous meetings where they suggested future rate hikes were possible.

“The U.S. banking system is sound and resilient,” the FOMC said in a statement. “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation. The extent of these effects remains uncertain.”

The FOMC last voted to raise rates in March, less than two weeks after the failures of Silicon Valley Bank and Signature Bank. The committee noted in yesterday’s statement that economic activity expanded at a modest pace in the first quarter of 2023. It also said that job gains have been robust in recent months, the unemployment rate has remained low and inflation remains elevated.

Powell: Fed seeking to learn from SVB closure

The Federal Reserve is committed to learning the right lessons from the recent bank failures, “and we will work to prevent events like these from happening again,” Fed Chairman Jerome Powell said. Speaking to reporters following the announcement of the FOMC’s decision to raise the federal funds rate, Powell noted a recent agency report that found missteps in its supervision of SVB in the months before the bank’s closure.

“The review’s findings underscore the need to address our rules and supervisory practices to make for a stronger and more resilient banking system, and I’m confident that we will do so,” Powell said.

Among its findings, the report by Fed Vice Chairman of Supervision Michael Barr pointed to previously adopted regulatory tailoring standards that he said impeded effective supervision, though it acknowledged that in the case of SVB, “higher supervisory and regulatory requirements may not have prevented the firm’s failure.” Powell said he found persuasive the argument that stronger supervisory oversight would be needed in the future. Still, the chairman said his focus remains on learning what went wrong with SVB.

“It may just have been technology evolving—we have to keep up with all that—but some of it may be our policies, supervisory and regulatory,” he said. “Our job now is to identify those things and implement them… I feel like I am accountable for doing everything I can to make sure that that happens.”

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