The Federal Reserve of the United States (Fed) has decided this Wednesday to continue with its plan to increase interest rates to contain inflation and raises interest rates again by 0.25% despite the financial instability generated by the crisis Silicon Valley Bank (SVB) and Signature Bank. With this rise they are in a range of 4.75% to 5%.

In addition, the US body wanted to send a message of calm and said in a statement in which it announced the decision that the banking system “is solid and resilient.”

With this rise in rates, it is the ninth consecutive increase and it is the same amount as the one already carried out in February, when it placed them at around 4.5% to 4.75%.

Although the president of the US bank, Jerome Powell, indicated in the first week of March that “there is a long way to go” with regard to the rate hike, this Wednesday he changed his discourse and anticipated this Wednesday that, as a result of the recent crisis banking, current interest rate increases may not be adequate to contain inflation. “Instead, we now anticipate that some additional policy firmness may be appropriate,” he said at a press conference following this recent rate hike.

The US Federal Reserve raises interest rates by 0.25 points to 4.75 and warns that they will continue to rise
The US Federal Reserve raises interest rates by 0.25 points to 4.75 and warns that they will continue to rise
However, many experts consider that the entity should stop the increases in an environment of banking uncertainty after the fall of the SVB. In fact, New York Fed President John Williams has warned against using monetary policy to mitigate financial instability: “Monetary policy should not try to be jack of all trades and master of none.”

For her part, the US Treasury Secretary, Janet Yallen, defended on Tuesday the “soundness” of the country’s banking system, stressing that the current situation cannot be compared to the 2008 crisis, since the financial system it is now “significantly stronger” than then. “The situation is stabilizing and the US banking system remains strong,” she said in a speech to the American Bankers Association in Washington.

A context altered by the Silicon Valley Bank crisis
All this situation of banking uncertainty is due to the bankruptcy of the SVB and Signature Bank, which caused collapses and volatility in the world stock markets last week, including European banks such as Credit Suisse, whose crisis was resolved when it was acquired this weekend. week by its competitor UBS. All in all, world markets and banks have experienced one of the toughest financial weeks in a long time.

Keys to the collapse of the Silicon Valley Bank: what has happened and what are the risks of its fall?
Keys to the collapse of the Silicon Valley Bank: what has happened and what are the risks of its fall?
In this context, both Janet Yellen and Jerome Powell have tried to provide some stability, assuring citizens and markets that the situation will not lead to a financial crisis. In fact, the Fed has launched a new fund so that banks that need to insure their customers’ deposits have money to do so.

In addition, major US banks banded together last week to bail out First Republic Bank with $30bn, which was threatening to go the way of SVB and Signature Bank after a sharp drop in share value.
Follow in the footsteps of the European Central Bank
The Fed’s decision occurs in a scenario where another major world bank, the European Central Bank (ECB), maintained last week its plan to raise interest rates by 0.5 points to curb inflation, up to the environment 3.5%, despite the concern in the markets caused by the crisis of the Swiss bank Credit Suisse and that of the SVB.
The president of the ECB, Christine Lagarde, has put the mission of bringing inflation to the 2% target -far from the 8.5% reached in February- before containing the increases due to the uncertainty of the markets. In fact, he wanted to give them some reassurance by making it clear that the ECB had the necessary tools to provide banks with liquidity after the Credit Suisse and SVB crisis: “We are prepared to respond as necessary to maintain price and financial stability in the Euro zone”.