The US Federal Reserve’s latest meeting saw interest rates remain unchanged, with the benchmark rate staying between 2.25% and 2.5%. However, the central bank hinted that a cut could occur at the next meeting in June. The Fed cited its concern over Brexit, US-China trade negotiations, and European economic instability, and noted that inflation was falling below the target of 2%. While economic growth was predicted to continue, the Fed indicated that concerns could emerge around a recession, with the risk of a “jobsful” downturn. Despite criticism from some Democrats, Fed Chair Jerome Powell reaffirmed his commitment to raising rates if necessary to achieve the 2% inflation goal.
The lack of change to interest rates led to relief in both banks and markets, with the expectation of steady supply helping to prevent multiple rate hikes that could harm the stock market. Those hoping for a rate cut to stimulate economic growth will have to wait until June’s meeting. Despite annual inflation sitting at 5%, which exceeds the central bank’s target, US unemployment remains stable, while wage growth has continued at 4% per annum. While many investors are keen for interest rate cuts, experts predict a mild reduction at the end of 2019, rather than a significant change in policy.
However, higher interest rates are continuing to cause issues in the banking sector. Recent months have seen the second, third, and fourth-biggest bank failures ever in First Republic, Silicon Valley Bank, and Signature Bank. Despite previous rate hikes, inflation has remained above the target of 2%, meaning the Fed could face criticism over the rate increase.
Moving cash into high-yield savings accounts offering interest rates of around 5% could prove useful for savers. Regular savers may want to make the switch, with an average rate of 0.39% on traditional accounts, and transferring to high-yield savings accounts being fast and straightforward using online providers. While credit card interest rates have surged, with Lending Tree chief credit analyst Matt Schulz advising debt holders to pay off what they can, the prospects for savers remain good.
The Federal Reserve raised interest rates by 25 basis points to between 5% and 5.25% as a response to inflation, which has remained above the central bank’s target of 2%. It marked the 10th consecutive rate increase, and some analysts are now concerned about regional banks under threat of collapse. The moves have triggered a banking problem, with banks facing losses on older securities and low-interest loans compared to more recent products.
