Fed raises interest rates by a quarter point amid high inflation and now bank collapses

Federal Reserve Chairman Jerome Powell will make the announcement at the conclusion of the bank's two-day monetary policy meeting.
Jerome Powell, July 2022

The Federal Reserve announced Wednesday it will again raise interest rates – this time by a quarter of a point as it is juggling whether another rate hike will help cool the U.S. economy while still keeping the U.S. banking system secure.

"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent," the Fed said when announcing the rate hike. The rate was 4-1/2 to 4-3/4 percent, but Wednesday's increase is slightly less than the 0.5% that was projected in December.

"Inflation remains well above our longer-run goal of 2%," Reserve Chairman Jerome Powell said at the conclusion of the bank's two-day monetary policy meeting.

While inflation has "moderated" somewhat since last year, "pressures continue to run high," he said, reflecting how the inflation rate in February was up 6% from the year before.

"The process of getting inflation back down to 2% has a long way to go and is likely going to be bumpy," he warned.

The central bank has aggressively raised interest rates over the past year, bringing down inflation significantly from its summer peak, according to ABC News.

But the recent collapse of two U.S. banks – Silicon Valley Bank, then Signature Bank – has raised concerns about whether another rate hike will bring the country closer to a banking crisis. 

"Our banking system is sound and resilient," Powell said Wednesday. He also said that his agency is working with the Treasury Department to strengthen confidence in the banking system and protect the economy.

The rapid and continuous rise in interest rates tanked the value of bonds held by Silicon Valley Bank, contributing to its failure earlier this month and causing a ripple effect in the financial sector, ABC also reports.

Nearly 190 banks are at risk of collapse amid high interest rates and declining asset values, according to a study by a team of university researchers released earlier this month.

The Federal Reserve raised its benchmark interest rate by 4.5% over the past year, the fastest pace since the 1980s.