Fed raises interest rates 0.25%

The Federal Reserve this afternoon announced an interest rate hike of 0.25%, representing a reduction in the size of the rate hikes recently imposed by the Fed. The move raises the Fed’s interest rate to 5%.

“Recent indicators point to modest growth in spending and production,” the Fed said. “Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated.”

The Fed said that it believes the U.S. banking system is sound and resilient. There had been speculation that it might not impose another rate hike right now in view of the   failures of Silicon Valley Bank and Signature Bank and global concerns about bank stability. There have been concerns by some economists that higher interest rates have the result of reducing the value of long-term bonds paying lower interest in which banks have invested.

The Fed said 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% over time.