Auzzi Shopping

Men's Weekly

.

The Fed raises interest rates despite the ongoing banking crisis

  • Written by Auzzi Shopping
  • On Wednesday, 22 March 2023, the Federal Reserve continued its fight against inflation and once again raised interest rates by 0.25%. This move causes concern because the present banking crisis has developed precisely because of rising interest rates.

KUALA LUMPUR, MALAYSIA - Media OutReach - 23 March 2023 - On Wednesday, 22 March 2023, the Federal Reserve continued its fight against inflation and once again raised interest rates by 0.25%. This move causes concern because the present banking crisis has developed precisely because of rising interest rates.

So far, the Federal Reserve's (Fed) successful strategy for fighting inflation has been to raise the key rate and reduce the balance sheet. This negatively impacted the value of U.S. Treasury bonds and other securities, which are an important source of capital for most U.S. banks. Silicon Valley Bank was the first to fail—it was forced to quickly sell the cheaper bonds at a significant loss, leading to a liquidity crisis and eventual collapse. This was followed by Signature Bank and Credit Suisse, which had to sell-off, and First Republic, which received a lifeline.

The U.S. Federal Reserve recognised its mistake and took emergency measures to support the banking system. It provided $303 billion of liquidity to banks through the Discount Window and Bank Term Funding Program (BFTP), thereby curbing the banking crisis locally.

The crisis also spread to the eurozone, with Credit Suisse failing after a 166-year run. To prevent a complete collapse, the Swiss National Bank (SNB) opened a credit line for Credit Suisse, which enabled it to take a $53.7 billion loan and stay afloat. However, it ultimately failed.

Just hours after opening the credit line, the European Central Bank (ECB) President Christine Lagarde announced a rate hike, doubling it by 50 basis points at a scheduled meeting. While investors viewed this as a positive signal for European economic stability, the rate hike decision appeared hasty and could potentially lead to an aggressive rate hike by the Fed.

At Wednesday's meeting, the Fed showed great restraint by adhering to its baseline and raising the key rate by 25 bps, while looking to reduce the balance sheet further. The press release on the situation with the banks stated the following:

"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 Committee remains highly attentive to inflation risks."

Jerome Powell reported the need for continued balance sheet cuts. Commenting on the issue, the OctaFX financial market analyst Kar Yong Ang said: 'It is commendable that the Fed did not cave to market pressure and maintained the course to suppress inflation. This is a crucial step that will help them curb inflation and perhaps even avoid a recession.'

However, there were dovish signals in the Fed's dot plot, including a rate cut of 75 bps next year. Seeing only the growing liquidity flow, the market interpreted it as the end of the tightening monetary policy cycle, with swap markets betting that the U.S. Fed rate will fall to 4.19% at the end of this year.

The banking sector is facing great risks, and the regulators' fight against inflation could make it more unstable, ultimately dragging the rest of the economy down the chain and potentially causing a global recession. Only time will tell whether this happens.

The issuer is solely responsible for the content of this announcement.

About OctaFX

is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and a variety of services already utilised by clients from 180 countries with more than 21 million trading accounts. Free educational webinars, articles, and analytical tools they provide help clients reach their investment goals.

The company is involved in a comprehensive network of charitable and humanitarian initiatives, including the improvement of educational infrastructure and short-notice relief projects supporting local communities.

OctaFX has also won more than 60 awards since its foundation, including the 'Best Online Broker Global 2022' award from World Business Outlook and the 'Best Global Broker Asia 2022' award from International Business Magazine.

Today's Features at Auzzi

Why Hiring a Professional WooCommerce Website Designer Matters

With the boom in online shopping, having a solid eCommerce presence is more important than ever. But here’s the catch: launching a store that looks professional, runs smoothly, and drive...

How Proper Water Treatment Can Save Your Business Money

Image by freepik Investing in proper water treatment isn’t just a matter of health and safety—it’s a smart financial decision for businesses. Whether you operate in manufacturing, ho...

Is That Noise a Hot Water System Death Rattle? How to Foresee Your System's Death

There's nothing quite like stepping into a nice hot shower...that is, until you hear that awful rumble or clunking sound! This is what plumbers unaffectionately refer to as the “hot wate...

Exploring the Surge in Lip Volumising Treatments Across Australia

There’s a good reason lip volumising treatments have surged in popularity across Australia. Whether you’re just curious or already considering treatment, there’s no denying that lip ...

Four Key Benefits of Telehealth in Australia

Telehealth has become a cornerstone in the Australian health sector over the past few years. It helps to deliver high-quality care but in a smarter way by bridging the gap between medical...

Is It Safe to Buy a Refurbished Phone?

A "cheap phone" sounds great until you wonder if it’ll last a month. So, are refurbished phones safe, or just a gamble? Let’s cut through the hype: yes, some cheap phones are poorly r...

Aerial Perspectives: Showcasing Sustainable Home Designs in Sydney Real Estate

Key Highlights Aerial photography is transforming the way sustainable home designs are showcased in the Sydney real estate market. Drone footage allows audiences to explore eco-friendl...