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News from today’s May Fed meeting

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The Federal Reserve is expected to raise its key short-term interest rate by 25 basis points today, continuing its push to curb inflation which has slowed, but remains far above the target that would signal soaring prices are under control.  

The bigger question looming as Fed officials meet Wednesday is whether they’ll hint that this latest increase will be the central bank’s final rate bump of the year. Policymakers are waiting to see how much lending tightens following the collapse of Silicon Valley Bank and Signature Bank, which may also slow the economy and curb inflation.

  • The Fed could also resume hiking rates later if high prices and a still-hot labor market don’t slow down as expected. The central bank is not expected to hint at any rate cuts this year.

Dow Jones

Two of the three major U.S. stock indexes were up as markets opened Wednesday and investors eagerly awaited the Fed’s decision on another rate hike. S&P 500 shares were up 0.18 and the NASDAQ was up 0.29%. The Dow however ticked lower, down 0.03%.

Fed interest rate decision today

The Fed will reveal its decision at 2 p.m.  

Americans are already reeling: How the Fed’s rate hikes affect you

Good news coming? Fed may hint at a pause in inflation fight

When is the next Fed rate decision?

The next Fed interest rate decision will be on June 14th.

Fed meeting mortgage rates

Homeowners who currently have fixed-rate mortgages won’t see any changes. Those who’ve recently purchased a home or are now house hunting are feeling the pinch of higher rates. But mortgage rates have been volatile and are down from their 2023 peak of 6.73% in early March. As of last week, the average rate was 6.43%. 

The Fed can impact mortgage rates but doesn’t directly set them, so even with a rate increase, home loan costs may not rise. The expected rate hike on Wednesday has already lifted the cost of a new average 30-year mortgage by $11,160 over the life of the loan, as rate hikes are usually priced into mortgage rates in advance, WalletHub said.

Bank failures in 2023

First Republic was the third bank failure in two months, overtaking Silicon Valley Bank as the second biggest bank collapse in U.S. history.   

SVB’s collapse occurred when struggling tech companies with accounts began taking their money out to cover their expenses, leading SVB to sell bonds that were now worth less because of the Fed’s string of rate hikes. The bank run then accelerated as customers with deposits greater than $250,000, which aren’t FDIC insured, rushed to withdraw their money amid SVB’s capital losses.

Similar bank runs led to the failure of Signature Bank, which played a key role in the cryptocurrency industry, and put First Republic Bank in jeopardy. First Republic received $30 billion in deposits from JPMorgan Chase and 10 other big banks to keep it afloat but ultimately saw its share price plummet when its quarterly results showed depositors had withdrawn over $100 billion. Regulators seized the bank Monday and sold its accounts and most of its assets to JP Morgan Chase. 

Federal regulators also intervened with SVB and Signature banks, taking the unusual step of backing all their deposits including those the FDIC was not obligated to insure because they were greater than $250,000. They also created a lending facility that would enable other regional banks to borrow money to cover withdrawals by uninsured depositors if needed.

A Federal Reserve report noted that lax oversight by regulators contributed to SVB’s failure. 

Bank failures: How often do they happen?

SVB lobbied Congress for less regulation: Signature Valley Bank wanted fewer regulations  

Student loan borrowers vs. SVB depositors:Who deserves a bailout?

First Republic Bank

First Republic Bank became the second biggest bank failure in history when federal regulators seized the institution on Monday and JP Morgan Chase committed to acquiring the bank’s customer accounts and most of its assets. 

First Republic had been on shaky ground after the failures of SVB Bank and Signature Bank in March, with account holders and investors worried that it might meet a similar fate since it also had a large number of uninsured deposits. First Republic had also been a major lender to the wealthy, granting them low interest loans that were now of little value. 

Eleven larger banks attempted to come to First Republic’s rescue last month, giving it $30 billion. But First Republic revealed in its quarterly report that depositors had withdrawn over $100 billion, a bank run that was accelerated by the ease with which panic can spread through social media. 

Investors fled, sending the bank’s shares plunging 75% last week with the  stock price down to $3.51 at the close of markets Friday. 

First Republic Bank sold: The bank was seized by federal regulators and sold to JP Morgan  

Charisse Jones and Associated Press

What is the rate of inflation?

Inflation slowed in March, according to a measure favored by the Fed, with consumer prices rising 4.2% as compared to the same month a year ago, which was the smallest uptick since May 2021, according to the Commerce Department. March prices fell from 5.1% the previous month and 7% in June which marked a four-decade high.

Core prices, which don’t count volatile items like food and energy and so offer a clearer snapshot of longer trends, rose 0.3%, lowering the annual increase to 4.6%. That was down from 4.7% in February, a revised figure that ticked upward.

Inflation eases: The Fed may slow rate hikes after inflation eases in March

Economy grew but a recession may still loom:The nation’s GDP rose slightly, but high interest rates could still trigger recession

What is the current Fed interest rate?

The Fed’s rate hike in March lifted its federal funds rate to a range of 4.75% to 5%. Today’s anticipated hike would lift the rate to a range of 5% to 5.25%.

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