The Federal Reserve on Wednesday raised its key rates by a quarter of a percentage point, signaling that it was ready to suspend further increases in borrowing costs amid the recent turmoil in financial markets caused by the collapse of two American banks.
The basic discount rate for demand deposits is fixed between 4.75 and 5.00%.
With the sudden bankruptcies of two major banks, Silicon Valley Bank (SVB) and Signature Bank, this month, the Fed no longer mentions the opportunity for further rate hikes in a statement.
Three major US stock indexes rose immediately after the Fed’s announcement.
Traders are divided on whether the U.S. central bank will be forced to halt its rate hike cycle as U.S. authorities explore ways to bolster financial stability and also address problems faced by another major bank, First Republic.
While the Federal Open Market Committee said in a statement that the U.S. banking system is “strong and resilient,” it also notes that recent strains in the banking sector are “likely to tighten credit conditions for households and businesses. and put pressure on economic activity, hiring and inflation.
The Fed’s continued hike in rates to curb inflation is one of the factors behind the biggest bankruptcies in the banking sector since the 2008 financial crisis.
The latest move to stem the fall in regional bank stocks came after Pacific Western Bank said it raised $1.4 billion from investment firm Atlas SP Partners.
The bank’s shares, which have lost nearly 47% of their value this year, have fallen more than 10% in intraday trading as the bank’s owners try to dispel investor fears by saying they have more of $11.4 billion in accounts in 2020. Martha.
Less than two weeks after Silicon Valley Bank collapsed under the weight of bond losses from rising interest rates, Man Group hedge fund CEO Luke Ellis said the market turmoil is not were not yet over and predicted further bank failures.
Experts point out that the situation is different from the crisis of 15 years ago, stating that banks are better capitalized and funds are more available.
The collapse of SVB marked the start of turbulent events in the sector, which led to the takeover of Switzerland’s largest bank, Credit Suisse. It was bought by its competitor UBS for 3.2 billion dollars.
While the deal has brought some respite to banking stocks, First Republic remains in the spotlight. The U.S. lender is looking for ways to cut costs if it can’t raise new capital, three people familiar with the matter said. On Wednesday afternoon, First Republic shares were down 2.3%.
Conservative Republicans and Progressive Democrats in the Senate introduced legislation to replace the Fed’s national overseer with a president-appointed body to bolster banking oversight after the collapse of SVB and Signature Bank.
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