Yesterday, March 22, 2023, The Federal Reserve announced a quarter of a percent rate hike to tame inflation. The hike may surprise those who thought last week’s bank failures would make the Federal Reserve take a step back from raising rates. Why did they think that? Banks are sitting on unrealized losses due to bonds losing value every time the Fed increases rates.
The Fed’s thoughts are simple, tame inflation at all costs. Even though it’s been difficult, one can argue that the Fed would have raised rates higher if the bank failures didn’t occur. One thing we know for sure is, according to Powell, “rate cuts are not in our base case” for 2023.
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