The Federal Reserve is set to commence a two-day policy meeting on Tuesday, with expectations that the benchmark overnight interest rate will reach its highest level in almost 16 years, approaching the 5% mark. This would signal a significant shift in the central bank's policy, one that has not been seen since the onset of the financial crisis in 2007.
While the Fed's decision to raise interest rates is not unexpected, it will be the second straight meeting held following a major U.S. bank failure. This has raised concerns that the fast run-up in interest rates may have a ripple effect across the financial system and potentially beyond it. The recent FDIC-brokered takeover of First Republic Bank by JPMorgan serves as the latest evidence of this.
Despite these concerns, the Fed appears resolute in its decision to continue its aggressive stance on monetary policy. However, the central bank will need to tread carefully in the coming months to ensure that the economy remains stable and that inflation does not spiral out of control.
