Fed Raises Interest Rates Amid Banking Crisis
Yesterday, Federal Reserve officials raised interest rates by 0.25 percent, putting it just below 5 percent. The same day, policymakers released projections of rates climbing another quarter percent by the end of the year.
This increases the cost of credit throughout the economy by making loans more expensive. In response to criticism, Chairman of the Board of Governors of the Federal Reserve System Jerome Powell displayed confidence in the decision. He told reporters that America’s banking system was “strong and resilient.” Is that what Americans are seeing?
Why raise interest rates? Raising interest rates is a way to slow down the amount of money circulating through the economy. Higher rates means less demand for goods and services. If less people are buying, the price of those goods and services tends to fall. In light of skyrocketing food and fuel prices, this seems like an easy fix to inflation.
Rising unemployment: There are drawbacks to this solution. Powell has admitted the likelihood of a rising unemployment rate. In his remarks to the Senate Banking Committee earlier this month, he said: “We’re very far from our price stability mandate and, in effect, the economy is past most estimates of maximum employment.” With demand for goods and services going down, demand for workers goes down with it.
Stock market declines: Investors were anticipating this spike in rates. As such, the S&P 500 fell sharply toward the end of trading. It finished 1.65 percent lower than the start of the day.
More trouble for banks? Silicon Valley Bank failed because it didn’t anticipate the rapid rise in interest rates. Last autumn, the Bank of England had to step in and rescue pension funds for the same reason. Much of the financial system has become addicted to cheap credit. Will the rising rates reveal more problems?
Is there a solution? The dangerous economic predicament of the West is more than disheartening to Americans. It’s affecting their livelihoods. Amid all of these failing financial institutions, there is hope for America. It won’t come from any organization of men. To learn the only way out of this calamity, read Trumpet editor in chief Gerald Flurry’s latest article “The Only Solution to Our Financial Crises.”
