Federal Reserve raises its key rate by a quarter-point and calls the banking system ‘sound and resilient.’

On Wednesday, the Federal Reserve raised its benchmark interest rate by a quarter percentage point for the second time this year. Moreover, it signaled that it might accelerate future increases. The decision, which moves the federal funds rate to a range of 1.75 percent to 2 percent, reflects the central bank’s confidence in the economy and its ability to withstand higher borrowing costs.

Intro

The U.S. economy has been chugging along nicely in recent times, with the unemployment rate at its lowest since 2000, inflation close to the Fed’s two percent target, and GDP accelerating to an annualized rate of 2.2 percent in the first quarter. However, this rosy picture is not without its dangers. Risks from a global trade war, increases in oil prices, and geopolitical tensions make for a potential cloud on the horizon.

The Federal Reserve rate hike

The rate hike results from the Fed’s optimistic outlook on the economy’s future. The U.S. Central bank expects the economy to grow by an annual rate of 2.8 percent this year while the unemployment rate falls to 3.6 percent, the lowest since 1969. The rate hike is a testament to the Federal Reserve’s confidence in the economy and ability to withstand higher borrowing costs.

The banking system

During his press conference on Wednesday, Fed Chairman Jerome Powell also referred to the current banking system as “sound and resilient,” which is a welcome change from pre-financial crisis times. Banks were under increased scrutiny in the wake of the global financial crisis in 2008, and the Fed’s new stance indicates a healthy and growing banking system, ready to handle changes in policies and the market.

Related facts

• This is the seventh time they had raised the key rate since December 2015, when they first hiked Benchmark rates after keeping them at zero percent for years.
• The Federal Reserve’s forecast indicates it could raise rates twice more in 2018 alone.
• This move aims to balance the strong U.S. economy, which has been expanding for nine years, against the possibility that steep trading tariffs and geopolitical tensions could weigh it down.

Key takeaway

Although this move by the Federal Reserve indicates a strong and growing U.S. economy, it has risks. Tensions with other countries and geopolitical issues could cause further economic instability, challenging continued growth. However, for now, U.S. banks seem to see brighter days ahead.

Conclusion

With this move, the Federal Reserve has shown its confidence in the U.S. economy and its ability to handle higher borrowing costs. This is a welcome change from previous years of stagnancy and uncertainty. Nevertheless, risks still exist, and policymakers and the public need to stay vigilant in keeping the economy on a positive trajectory.