US Federal Reserve Expected to Increase Interest Rates

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The US Federal Reserve is set to increase its benchmark lending rate for the tenth time, as it aims to bring down inflation while preventing fresh banking concerns from spreading. The Fed has been aggressively raising interest rates since March of last year, with inflation remaining above its long-term target of 2%. The Federal Open Market Committee is expected to raise its base rate by a quarter-point on Wednesday, with analysts watching for any change to the Fed's forward guidance on interest rates. Despite mixed data on the US economy and recent turbulence in the banking sector, futures traders still see an over 85% chance that the Fed will raise rates by a quarter-point, bringing its benchmark lending rate to between 5 and 5.25%. However, analysts predict that the Fed will signal a pause in hikes from June onwards.

Banking Turmoil Resurfaces

This week saw the reemergence of turbulence in the banking sector after a relatively calm period, with First Republic Bank collapsing over the weekend in the second-largest commercial bank failure in US history. Regional banking stocks also came under renewed pressure on Tuesday. The data on the US economy is mixed, with growth slowing to an annualized rate of 1.1% in Q1 of this year. Some analysts believe that this will provide the Fed with the justification it needs to come out with more mild forward guidance on Wednesday's decision. Minutes published from the March Federal Open Market Committee meeting showed that the Fed predicted the US would enter a mild recession later this year when it decided to hike interest rates.

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