Portugal Colonial - US Fed lifts key interest rate, voices banking sector concerns

The quarter-point increase, which was in line with expectations, lifted their interest rate target to between 4.75 and 5 percent at the end of a two-day policy meeting, the Fed said in a statement.

The policy-setting Federal Open Market Committee (FOMC) added that "some additional policy firming may be appropriate" to get to a stance that is sufficiently restrictive to bring inflation down.

The latest increase was the same size as the central bank's previous rate decision in February, and marks its ninth straight rate hike.

The Fed also updated its economic projections on Wednesday, slightly lowering its 2023 GDP growth projections 2023 to 0.4 percent from 0.5 percent in December.

Median projections for the Fed's benchmark rate at the end of this year were unchanged, while inflation expectations rose slightly.

- 'Bumpy ride' to bring inflation down -

Wednesday's decision underscores the Fed's determination to tackle inflation, which remains stubbornly above policymakers' long-term annual target of two percent despite the sustained effort to lower price increases.

"Getting inflation back down to two percent has a long way to go and is likely to be bumpy," Fed Chair Jerome Powell said during a press conference on Wednesday afternoon.

The Fed warned in its earlier rate announcement that the recent banking turmoil sparked by the collapse of Silicon Valley Bank (SVB) could impact the availability of credit for households and businesses, and "weigh on economic activity, hiring, and inflation."

SVB's excessive exposure to interest-rate risk left it vulnerable when the Fed began rapidly raising rates. The Californian lender was forced to realize losses on bonds it had intended to hold for a long time, which led concerned customers to rapidly pull their money from the bank, bringing about its collapse and striking fear into the financial markets.

Banking stocks tumbled in the weeks that followed, leading to the collapse of two additional regional lenders and the merger under pressure between Credit Suisse and its regional rival UBS.

In response, regulators introduced a series of policies designed to ensure that banks could access loans in a hurry if they needed, in order to avoid a repeat of the conditions that precipitated SVB's collapse.

- Fed to consider toughening up regulation -

The bank's management had "failed badly," Powell told reporters after the rate announcement Wednesday, adding that the Fed would look into boosting the supervision and regulation of US banks.

The impact of SVB's collapse on monetary policy was equivalent to "another rate hike, or perhaps more than that," he said, suggesting it could aid the bank in its fight against inflation.

But he insisted that the US banking system remained "sound and resilient" overall.

"We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools as needed to keep it safe and sound," he told reporters, adding that the Fed was "committed to learning the lessons from this episode, and to work to prevent episodes from events like this from happening again."

- Confusion over deposits weighs on markets -

A short distance from the Fed, Treasury Secretary Janet Yellen caused confusion during a Senate hearing about the level of support US authorities were willing to extend to uninsured depositors -- those who hold more than $250,000 in a single bank.

"I have not considered or discussed anything having to do with blanket insurance, insurance, or guarantees of all deposits," Yellen told Senators on Capitol Hill.

Her comments appeared to contradict Jerome Powell's comments during the Fed press conference.

"Depositors should assume that their deposits are safe," he told reporters.

"You've seen that we have the tools to protect depositors when there's a threat of serious harm to the economy or to the financial system, and we're prepared to use those tools," he said.

The S&P 500 index ended the day down almost 1.7 percent following Powell and Yellen's comments.

Wednesday's announcement follows on the heels of the European Central Bank's decision last week to raise rates by 0.5 percentage points.

ECB chief Christine Lagarde warned on Wednesday that the eurozone's monetary policymakers "will still have ground to cover to make sure that inflation pressures are stamped out."

She said the recent banking turmoil could add to "downside risks" in the single currency area.

A.Motta--PC