ISLAMABAD/ WASHINGTON: The US Federal Reserve has raised interest rates by a quarter of a percentage point despite worries that the move could add to economic turmoil after a string of bank failures.
The Fed hiked its key rate by 0.25 percentage points, terming the US banking system “sound and resilient”.
But the central bank also warned that fallout from the private banks’ failure could hurt economic growth in the coming months.
The Federal Reserve had consistently been raising borrowing costs to stabilize prices. But the steep increase in interest rates since 2022 has led to stresses in the banking system.
In the US, Silicon Valley Bank and Signature Bank, collapsed earlier, buckling in part owing to problems caused by higher interest rates.
There were concerns about the value of bonds held by other banks, as rising interest rates could make those bonds less valuable.
Banks often hold large portfolios of bonds and, as a result, were sitting on significant potential losses. Falls in the price of bonds held by banks were only necessarily a problem if they were forced to sell them.
Authorities worldwide had said they did not think the failures threatened widespread financial stability and needed to distract from efforts to bring inflation under control.
Last week, the European Central Bank raised its key interest rate by 0.5 percentage points.
