By Holden Wilen – Staff Writer, Dallas Business Journal
Mar 23, 2023
North Texas bankers may have expected the Federal Reserve to raise interest rates again on Wednesday, but that doesn’t mean they had to be happy about it.
The Fed, as expected, nudged the target for the federal funds rate up by a quarter of a point to a range of of 4.75% to 5% — the ninth hike implemented since March 2022 as the central bank tries to tame persisting inflation. The latest increase comes in the wake of the biggest crisis to hit the financial industry in more than a decade after the recent collapses of Silicon Valley Bank and Signature Bank.
The Federal Open Market Committee, which sets interest rates, said in a prepared statement it remains “strongly committed” to bringing inflation back down to a 2% target. The committee also indicated rate increases could come to an end soon.
“The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” according to the statement. Previously, the committee used language saying “ongoing increases” in interest rates would be appropriate to quell inflation.
Inflation fell to 4.7% in January from 5.2% in September, as measured by the 12-month change in the personal-consumption expenditures price index excluding food and energy, the Fed’s preferred metric. The Fed’s latest projections imply one more quarter-point interest rate hike to at least 5.1% and then holding steady through December.
Chairman Jerome Powell said during a press conference the U.S. banking system remains “sound, resilient and has ample liquidity.” However, he warned the failures that occurred almost two weeks ago will likely to result in banks tightening credit conditions for households and businesses. Tighter credit will likely weigh on economic activity, hiring and inflation, having the same effect as additional potential interest rate hikes.
John Steinmetz, CEO of Dallas-based Vista Bank, said rising interest rates present challenges for borrowers but he thought the Fed “struck the right tone.”
“Chairman Powell signaling fewer future rate hikes should help stabilize the economy as people can better plan,” Steinmetz said. “That said, the Fed’s commitment to do what it takes to stunt rising inflation helps protect hard-working Americans, which is critical.”