Shuathara (Jakarta) – Let’s talk about what’s happening in the banking sector of the United States. Apparently, the Federal Reserve is having trouble continuing its aggressive monetary tightening due to the recent banking crisis. This is because the world’s top economy is already facing the threat of a mild recession later this year. So, the Federal Reserve raised its benchmark interest rate for the 10th time in early May 2023 to fight elevated US inflation, but it’s expected to be the final rate hike.
To prevent bank runs and more widespread financial contagion, the US Federal Reserve introduced an emergency fund called the Bank Term Funding (BTF) program. This program helps troubled regional banks and provides a backstop against worthless Treasury bonds. So far, USD $150.8 billion has already been pledged through the BTF program, and the maximum usage envisaged for the facility is close to USD $2 trillion.
However, injecting more liquidity into the system (more US dollars in circulation) means that the US dollar’s value weakens. On top of that, macroeconomic data from the US is not too great, with economic growth slowing sharply in Q1-2023 due to higher interest rates. This slowdown reflects the impact of the Federal Reserve’s aggressive drive to tame inflation through a long series of interest rate hikes.
Inflation has steadily eased from the four-decade high it reached in 2022, but it remains quite far above the Federal Reserve’s two percent target, at around 5 percent in March 2023. So, while the US Federal Reserve tries to fix the banking crisis, the economy is facing some tough times ahead. Stay informed, folks!