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Business News/ Opinion / Quick Edit/  US Fed’s priority
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US Fed’s priority

US investors were visibly let down by the Federal Reserve’s decision to hike its policy rate by a quarter-percentage-point on Wednesday, its ninth successive increase

People walk past the US Federal Reserve building in Washington, DC (AFP)Premium
People walk past the US Federal Reserve building in Washington, DC (AFP)

US investors were visibly let down by the Federal Reserve’s decision to hike its policy rate by a quarter-percentage-point on Wednesday, its ninth successive increase. With a crisis of banking traced to rising rates and battered asset holdings, they would have wanted the Fed to pause. Going by its action, though, it’s clear it won’t yet let inflation out of its cross-hairs. The Fed was stuck between a rock and a hard place. Tighter money might inflict more pain and risk overdoing it. Also, as economist Paul Krugman argued, bank jitters and a deposit flight to big banks and money-market funds might tighten US credit anyway. But the Fed may have reckoned it had already backstopped lenders with funds offered against well-rated bonds at face value, and a pause in its inflation battle would’ve signalled a premature surrender, inviting even more havoc eventually in the effort to restore price stability. Ultimately, it comes down to what America’s priority is. It’s true that a rising-rate regime has caused turmoil, and there may be more to come. But if the US dollar must keep its global reputation as a reliable store of value, then the Fed must carry on with Volckeresque determination.

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Published: 23 Mar 2023, 11:15 PM IST
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