Fed raises key rate but hints it may pause amid bank turmoil

But the Fed also signaled that it may now pause its streak of 10 rate hikes, which have made borrowing for consumers and businesses steadily more expensive.

The Fed chair stressed his belief that the collapse of three large banks in the past six weeks will likely cause other banks to tighten lending to avoid similar fates. Such lending cutbacks, he added, will likely help slow the economy, cool inflation and lessen the need for the Fed to further raise rates.

The Fed's rate increases since March 2022 have more than doubled mortgage rates, elevated the costs of auto loans, credit card borrowing and business loans and heightened the risk of a recession. Home sales have plunged as a result. The Fed's latest move, which raised its benchmark rate to roughly 5.1%, could further increase borrowing costs.

Fed economists have estimated that tighter credit resulting from the bank failures will contribute to a"mild recession" later this year, thereby raising the pressure on the central bank to suspend its rate hikes. Powell reiterated his warning that"no one should assume that the Fed can protect the economy from the potential short and long-term effects of a failure to pay our bills on time."

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