When the Federal Reserve meets to decide whether to continue rising interest rates or proclaim a halt, the economic outlook has become more uncertain due to upheaval in the banking sector and persistently high inflation.
The vast majority of Fed observers anticipate that the central bank will announce a very modest quarter-point rise in its benchmark rate on Wednesday afternoon, the ninth increase since March of last year. But, for the first time in recent memory, the Fed’s policy announcement at 2:00 p.m. Eastern time will be met with some doubt.
The central bank will have to decide not just whether to continue its year-long record of rate rises amid the uncertainties rattling the financial sector, but also whether to extend the streak. The Fed’s officials will also attempt to predict the likely future course of growth, employment, inflation, and interest rates.
This time, the predictions will be very challenging. Fed officials anticipated in their most recent predictions in December that they would raise their short-term rate to around 5.1% by the end of the year, almost a half-point above the present level. Some Fed observers anticipate that officials will increase the prediction to 5.3% on Wednesday.
Yet, the turmoil in the financial system has made such predictions far less solid. The Fed is convening less than two weeks after the second-largest bank failure in American history, the failure of Silicon Valley Bank. The demise of another big bank, Signature Bank, followed the jolt. The infusion of $30 billion in cash prevented the failure of the Third Republic Bank.