Breaking News! The Federal Reserve, also known as the Fed, has increased its benchmark interest rate by 25 basis points in a meeting of the Federal Open Market Committee (FOMC) on Thursday, May 4th, 2023, according to reports.
This marks the tenth consecutive increase since March 2022, bringing the Fed’s benchmark rate to a range of 5-5.25%, its highest level since 2007.
The decision was unanimous, with the FOMC signaling that this may be the last step in the most aggressive tightening campaign since the 1980s due to rising economic risks.
Following the announcement, the FOMC stated that they would “closely monitor incoming information and assess the implications for monetary policy.”
However, prior to the meeting, a prominent White House economist warned that the Fed’s interest rate hike to control US inflation could have negative impacts on the banking sector.
Heather Boushey, a member of the White House Council of Economic Advisers, urged the Republican Party not to play with the US economy by demanding spending cuts in exchange for increasing the debt ceiling, which currently stands at $31.4 trillion.
Boushey stressed the need for unconditional support for increasing the debt ceiling to avoid default risks, asserting that the US economy remained strong and that the current path should not be altered.
Additionally, Boushey warned that the Fed’s interest rate hike could add further burden to banks, considering the US economy is still fighting against inflation.
She further stated that while Congress could easily eliminate default risks by raising the debt ceiling, the issue of interest rates and their impact on banks’ assets was a far more complex question that could not be solved by a single entity.
Boushey’s comments were made while the Fed convened for its policy meeting, where analysts predicted that the Fed, led by Jerome Powell, would raise the benchmark interest rate by 25 basis points on Wednesday.
In other political news, last week, the Republican Party in the House of Representatives passed a bill to increase the debt ceiling that included significant cuts in spending, ranging from healthcare to air traffic control.
However, the Senate, which is dominated by the Democratic Party, along with President Joe Biden, have stated that they will not approve the bill.
As a result, President Biden has invited four top-ranking members of both parties in the Senate and House of Representatives for a meeting next week, after the US Department of Treasury warned that the government could run out of money to pay its bills starting from June 1st. With the Fed’s decision and the ongoing political tensions in the US, the economic outlook for the country remains uncertain.
