US Fed announces increase in interest rate amid a severe banking crisis

It has been just a few hours when The Federal Reserve increased the interest rate by a quarter points. Despite the severe banking crisis, the Federal Reserve announced a hike in the rate.
On Wednesday, the US Fed said that banking sector development will bring more credit conditions for businesses and households. It increased the rate from 4.75% to 5%. According to the study, this is the highest increase in the rate since the year 2007.
US Fed says the banking system is strong
When asked about the conditions of the banking sector, the Federal Reserve said that the US banking sector is sound. But the latest developments in the banking sector will affect many households as well as businesses.
This big hike in interest rate will increase the cost of funds and will affect the global economy. The US fed further added that the high inflation made it necessary for a rate hike.
Statement by policymakers
Most policymakers and officials say that the policy rate will hike from 5% to 5.25% by the end of 2023. They also added that there is high inflation as well as slow growth. Policymakers were focusing on lowering the inflation rate by 2%.
Fed’s decision came after the collapse of regional banks
The US Federal Reserve decision arrived after Silicon Valley Bank and some other regional banks failed to fix the losses of their bond portfolio. This crisis in the banking system led to the selling off of a major share in the stock markets as well.
US Federal Reserve added that it is capable enough to handle this crisis of the banking system. Certain global central banks managed by Fed brought a dollar swap facility to maintain liquidity in the market.
The increase in interest rate will affect the policy rates of central banks like the Reserve Bank of India (RBI) which will meet in April to decide the policy action.