US lifts rates by 25 bps despite ongoing crisis

Chair Jerome Powell said the Fed’s monetary policy actions are guided by its mandate to promote maximum employment and stable prices for the American people.

“My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation,” Mr Powell said.

“We are highly attentive to the risks that high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2 per cent objective.”

Mr Powell said keeping longer-term inflation expectations well anchored remains a top priority for the central bank. He added that reducing inflation is likely to require a period of below-trend growth and some softening of labour market conditions.

Over the 12 months ended in January, total personal consumption expenditure (PCE) prices in the US rose 5.4 per cent. Excluding the volatile food and energy categories, core prices rose 4.7 per cent.

In February, the 12-month change in the CPI came in at 6 per cent and the change in the core CPI was 5.5 per cent.

Mr Powell said that while inflation has moderated somewhat since the middle of last year, the strength of the recent readings indicates that inflation pressures continue to run high.

He also touched on the emerging banking crisis that has so far claimed Credit Suisse and a handful of mid-sized US lenders.

“History has shown that isolated banking problems, if left unaddressed, can undermine confidence in healthy banks and threaten the ability of the banking system as a whole to play its vital role in supporting the savings and credit needs of households and businesses,” Mr Powell said.

“That is why, in response to these events, the Federal Reserve, working with the Treasury Department and the FDIC, took decisive actions to protect the US economy and to strengthen public confidence in our banking system. These actions demonstrate that all depositors’ savings and the banking system are safe. With the support of the Treasury, the Federal Reserve Board created the Bank Term Funding Program to ensure that banks that hold safe and liquid assets can, if needed, borrow reserves against those assets at par.”

[Related: ‘First domino to fall’: Blackrock mulls banking crisis]