Federal Reserve Raises Key Interest Rate Despite Banking Turmoil

The Federal Reserve has raised its key interest rate by a quarter-point, extending its year-long fight against high inflation. Despite concerns that higher borrowing rates could worsen the turmoil that has gripped the banking system, the Fed remains confident that the US banking system is sound and resilient. The Fed warned, however, that the financial upheaval caused by the collapse of two major banks is likely to result in tighter credit conditions and could weigh on economic activity, hiring and inflation. The new rate will lead to higher costs for many loans and has heightened the risk of a recession. The Fed is deciding to treat inflation and financial turmoil as two separate problems, to be managed simultaneously by separate tools: higher rates to address inflation and greater Fed lending to banks to calm financial turmoil.