{"id":2960,"date":"2023-03-29T12:00:24","date_gmt":"2023-03-29T16:00:24","guid":{"rendered":"https:\/\/canadianlending.ca\/brokers\/?p=2960"},"modified":"2023-05-17T16:39:48","modified_gmt":"2023-05-17T20:39:48","slug":"fed-hikes-interest-rates-despite-banking-troubles","status":"publish","type":"post","link":"https:\/\/staging.canadianlending.ca\/brokers\/fed-hikes-interest-rates-despite-banking-troubles\/","title":{"rendered":"Fed hikes interest rates despite banking troubles"},"content":{"rendered":"

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At the Federal Open Market Committee (FOMC) meeting on March 22, the US Federal Reserve increased interest rates by 25 basis points. The Fed\u2019s view is that inflation remains too high and the labour market continues to be very tight; however, problems in the banking system are expected to result in tighter credit conditions for households and businesses. This has led the Fed to change its perspective from anticipating that \u201congoing rate increases will be appropriate to quell inflation\u201d to \u201csome additional firming may be appropriate.\u201d<\/p>\n

In his press conference, Fed Chairman Jerome Powell stated that \u201cfirming\u201d refers to interest rates, and the market should focus on \u201csome\u201d and \u201cmay.\u201d We take that to mean that the Fed is done with tightening, and if rates are hiked further, it won\u2019t be by much.<\/p>\n

The rapid increase in interest rates has caused cracks in the financial system. Market expectations around peak rates fell on the hope that central banks would come to the rescue and cut rates – as was done during the 2008 financial crisis. We expect central banks will continue to fight stubborn inflation and use other tools to deal with any banking system problems.<\/p>\n

We don\u2019t see a repeat of the 2008 financial crisis \u2013 the banking stresses currently roiling markets are different, and banking regulations are much stricter now. However, to bring down inflation, central banks have had to raise rates high enough to cause economic damage. This has underscored some troubles at US mid-sized banks and raised concerns over some large European financial institutions.<\/p>\n

\u00a0What are the implications for financial markets?<\/strong><\/h2>\n