Last week the Federal Reserve, through the actions of its Federal Open Market Committee, raised interest rates for the ninth time in a row on Wednesday, opting to continue its campaign against high inflation despite stress from the problems at Silicon Valley, Signature, and Silvergate Banks. Orion cautions brokers that the Fed will need to weigh the impact of the collapse of the two regional lenders indeciding how much to raise interest rates going forward.

The committee voted unanimously to raise overnight Fed Funds to 4.75-5.0 percent. The extra .250 percent will make it more expensive for banks to borrow from one another, but will move through the system to people seeking car loans or carrying a balance on their credit cards. But Orion’s brokers know that mortgage rates are not tied to the Fed Funds rate.

Members of the Fed's rate-setting committee believe slightly higher rates may be necessary to restore price stability. On average, policy makers anticipate rates climbing by another quarter-percentage point by the end of this year, according to new projections that were also released on Wednesday. "The Committee anticipates that some additional policy firming may be appropriate."

Stress in the banking system appeared to ease in recent days, however. Treasury Secretary Janet Yellen said Tuesday that large withdrawals from regional banks have" stabilized… The U.S. banking system is sound and resilient.” Orion’s brokers should know that we are very careful about the safety and soundness of our counter party relationships.

"My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher cost of essentials like food, housing, and transportation," Fed chairman Jerome Powell told reporters during his news conference after the meeting.

What does this mean for your borrowers? Since the collapse of Silicon Valley Bank and Signature Bank, other banks are expected to be more conservative about making loans. "Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation," the Fed statement said. "The extent of these effects is uncertain." Tighter credit conditions, like rising interest rates, lead to slower economic growth. That could provide an assist for the Fed in curbing inflation. But it also raises the risk of tipping the economy into recession.

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