Saudi Press

Saudi Arabia and the world
Saturday, Aug 23, 2025

US raises interest rates despite banking turmoil

US raises interest rates despite banking turmoil

The US central bank has raised interest rates again, despite fears that the move could add to financial turmoil after a string of bank failures.

The Federal Reserve increased its key rate by 0.25 percentage points, calling the banking system "sound and resilient".

But it also warned that fallout from the bank failures may hurt economic growth in the months ahead.

The Fed has been raising borrowing costs in a bid to stabilise prices.

But the sharp increase in interest rates since last year has led to strains in the banking system.

Two US banks - Silicon Valley Bank and Signature Bank - collapsed this month, buckling in part due to problems caused by higher interest rates.

There are concerns about the value of bonds held by banks as rising interest rates may make those bonds less valuable.

Banks tend to hold large portfolios of bonds and as a result are sitting on significant potential losses. Falls in the value of bonds held by banks are not necessarily a problem unless they are forced to sell them.

Authorities around the world have said they do not think the failures threaten widespread financial stability and need to distract from efforts to bring inflation under control.

Last week, the European Central Bank raised its key interest rate by 0.5 percentage points.

The Bank of England is due to make its own interest rate decision on Thursday, a day after official figures showed that inflation unexpectedly shot up in February to 10.4%.

Federal Reserve chairman Jerome Powell said the Fed remained focused on its inflation fight. He described Silicon Valley bank as an "outlier" in an otherwise strong financial system.

But he acknowledged that the recent turmoil was likely to drag on growth, with the full impact still unclear.


Economic impact


Forecasts released by the bank show officials expect the economy to grow just 0.4% this year and 1.2% in 2024, a sharp slowdown from the norm - and less than officials projected in December.

The announcement from the Fed also toned down earlier statements which had said "ongoing" increases in interest rates would be needed in the months ahead.

Instead, the Fed said: "Some additional policy firming may be appropriate".

The moves "signal clearly that the Fed is nervous", said Ian Shepherdson, chief economist at Pantheon Macroeconomics.


Wednesday's rate rise is the ninth in a row by the Fed. It lifts its key interest rate to 4.75%-5%, up from near zero a year ago - the highest level since 2007.

Higher interest rates mean the cost to buy a home, borrow to expand a business or take on other debt goes up.

By making such activity more expensive, the Fed expects demand to fall, cooling prices.

That has started to happen in the US housing market, where purchases have slowed sharply over the last year and the median sales price in February was lower than it was a year ago - the first such decline in more than a decade.

But overall the economy has held up better than expected and prices continue to climb faster than the 2% rate considered healthy.

Inflation, the rate at which prices climb, jumped 6% in the 12 months to February. The cost of some items, including food and airfare, is surging even faster.

Before the bank failures, Mr Powell had warned that officials might need to push interest rates higher than expected to bring the situation under control.

The bank projections show policymakers expect inflation to fall this year - but less than expected a few months ago.

Still, they forecast interest rates of roughly 5.1% at the end of 2023 - unchanged since December - implying the Fed is poised to stop raising rates soon.

Mr Powell described the effect of the recent turmoil as the "equivalent of a rate hike".

He said the Fed may be able raise its key rate less aggressively, if the turmoil in the financial system prompts banks to limit lending, and the economy to slow more quickly.

But he repeated that the Fed would not shy away from its inflation fight.

"We have to bring down inflation down to 2%," he said. "There are real costs to bringing it down to 2% but the costs of failing are much higher."

Newsletter

Related Articles

Saudi Press
0:00
0:00
Close
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Miles Worth Billions: How Airlines Generate Huge Profits
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
Beijing is moving into gold and other assets, diversifying away from the dollar
Cristiano Ronaldo Makes Surprise Stop at New Hong Kong Museum
Zelenskyy to Visit Washington after Trump–Putin Summit Yields No Agreement
High-Stakes Trump-Putin Summit on Ukraine Underway in Alaska
Iranian Protection Offers Chinese Vehicle Shipments a Cost Advantage over Japanese and Korean Makers
Saudi Arabia accelerates renewables to curb domestic oil use
Cristiano Ronaldo and Georgina Rodríguez announce engagement
Asia-Pacific dominates world’s busiest flight routes, with South Korea’s Jeju–Seoul corridor leading global rankings
Private Welsh island with 19th-century fort listed for sale at over £3 million
Sam Altman challenges Elon Musk with plans for Neuralink rival
Australia to Recognize the State of Palestine at UN Assembly
The Collapse of the Programmer Dream: AI Experts Now the Real High-Earners
Armenia and Azerbaijan to Sign US-Brokered Framework Agreement for Nakhchivan Corridor
British Labour Government Utilizes Counter-Terrorism Tools for Social Media Monitoring Against Legitimate Critics
WhatsApp Deletes 6.8 Million Scam Accounts Amid Rising Global Fraud
Nine people have been hospitalized and dozens of salmonella cases have been reported after an outbreak of infections linked to certain brands of pistachios and pistachio-containing products, according to the Public Health Agency of Canada
Texas Residents Face Water Restrictions While AI Data Centers Consume Millions of Gallons
Tariffs, AI, and the Shifting U.S. Macro Landscape: Navigating a New Economic Regime
India Rejects U.S. Tariff Threat, Defends Russian Oil Purchases
United States Establishes Strategic Bitcoin Reserve and Digital Asset Stockpile
Thousands of Private ChatGPT Conversations Accidentally Indexed by Google
China Tightens Mineral Controls, Curtailing Critical Inputs for Western Defence Contractors
OpenAI’s Bold Bet: Teaching AI to Think, Not Just Chat
BP’s Largest Oil and Gas Find in 25 Years Uncovered Offshore Brazil
JPMorgan and Coinbase Unveil Partnership to Let Chase Cardholders Buy Crypto Directly
British Tourist Dies Following Hair Transplant in Turkey, Police Investigate
WhatsApp Users Targeted in New Scam Involving Account Takeovers
Trump Deploys Nuclear Submarines After Threats from Former Russian President Medvedev
Germany’s Economic Breakdown and the Return of Militarization: From Industrial Collapse to a New Offensive Strategy
IMF Upgrades Global Growth Forecast as Weaker Dollar Supports Outlook
Politics is a good business: Barack Obama’s Reported Net Worth Growth, 1990–2025
"Crazy Thing": OpenAI's Sam Altman Warns Of AI Voice Fraud Crisis In Banking
Japanese Prime Minister Vows to Stay After Coalition Loses Upper House Majority
President Trump Diagnosed with Chronic Venous Insufficiency After Leg Swelling
Man Dies After Being Pulled Into MRI Machine Due to Metal Chain in New York Clinic
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
Iranian President Reportedly Injured During Israeli Strike on Secret Facility
Kurdistan Workers Party Takes Symbolic Step Towards Peace in Northern Iraq
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
AI Raises Alarms Over Long-Term Job Security
Saudi Arabia Maintains Ties with Iran Despite Israel Conflict
Russia Formally Recognizes Taliban Government in Afghanistan
×