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The Federal Reserve – the US central bank, known as the Fed – has increased interest rates for the ninth time in a row.

The rate has been increased by 0.25 percentage points in an effort to bring down inflation, which in the US stood at 6% over the 12 months to February.

A higher increase had been expected prior to the collapse of Silicon Valley Bank, the rescue of regional US banks and the takeover of Credit Suisse.

At the start of this month, before the worst banking turmoil since 2008 began, Fed chair Jerome Powell had floated the idea of a 0.5 percentage points increase, a speeding up of rate increases. Last month the programme of rate hikes was slowed when the Fed instituted a 0.25 percentage points rise.

High interest rates lead to higher profits for lenders but also put pressure on banks as some government bonds, state IOUs, lose value.

Following Wednesday’s increase, US interest rates stand at 4.75% to 5%, up from 4.5% to 4.75% since the last increase in February.

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A five-point guide to the banking panic of 2023

In the US, the interest rate is a range, rather than a single percentage – as in the UK – because the Fed is not permitted to set a specific number.

A target rate is instead set as a guide for banks to follow.

Some economists had expected the Fed to pause rate rises all together.

Addressing banking concerns, the Fed said the US banking system is sound and resilient but the effects of recent developments is unknown.

“Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain.”

Tighter conditions are equivalent to an interest rate hike and perhaps may be more impactful, Mr Powell said.

“Such a tightening of financial conditions would work in the same direction as rate tightening in principle. As a matter of fact, you can think of it as being the equivalent of a rate hike, or perhaps more than that, of course, it’s not possible to make that assessment assessment today with any precision whatsoever.”

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Ed Conway - Economics editor

Ed Conway

Economics & data editor

@EdConwaySky

A lot of people were looking at what the Federal Reserve were going to do.

Of course they are they are the US central bank, the equivalent obviously of the Bank of England in the UK, and they are deciding not just monetary policy, so interest rates, quantitative easing all of that stuff, but they also monitor and regulate financial stability.

And that’s really important because of course, we all know what’s happened over the course of the last few weeks.

You’ve had big problems in US banks, you’ve had the collapse of Silicon Valley Bank, Silvergate, Signature Bank, some other banks there as well, and a lot of concerns that the intervention from the Fed and its other authorities like the Treasury, and the FDIC (Federal Deposit Insurance Corporation) hasn’t actually helped, it’s made people a little bit more nervous.

So put all of that together and there were some question marks about whether the Federal Reserve was going to raise interest rates as much as a lot of people had expected.

Let’s have a look at the actual rates and what they’ve done.

After financial crisis rates were already pretty low but they went even lower after COVID-19 but they have come up fast in the course of the last year or so, an extraordinary rise, nine increases.

And the question, of course, was whether this latest increase was going to be half a percentage point or a quarter of a percentage point and they’d gone for a quarter so up to 5%.

But this is interesting because a lot of people thought up until quite recently, they were going to go higher, they were going to go up towards well above 5%.

And the reason they haven’t is kind of interesting, because the Federal Reserve and its chairman Jay Powell and in the press conference that followed that decision emphasising the concern was that the financial system is struggling with the impact of these higher interest rates.

And that is basically raising some questions about whether the Fed is going to raise interest rates quite as much as people recently thought.

That’s relevant for the UK because the Bank of England is set to decide on its interest rate, those rates are at a 4% at the moment, a lot of people thought they were going to be maybe paused because of this concern about what’s going on with the financial system.

But then along came those high inflation numbers that we’ve just got, up to 10.4%, higher than expected.

Of course, the bank’s job is to try and target inflation.

So now people think they’re going to raise interest rates in the UK, maybe by a quarter percentage point.

We’ll have to wait and see what they do, we’ll have to wait and see what governor Andrew Bailey has to say about that.

But it is now a tense moment because with these rates quite so high, a lot of people worry that the financial system is starting to squeak a bit.

A rate rethink

Speaking on Wednesday Mr Powell said ongoing interest rate increases are no longer appropriate to bring inflation down to its 2% target. Instead, he said “some” additional raises “may be appropriate”.

Addressing the banking turmoil, he said: “we are committed to learning the lessons from this episode, and to work to prevent episodes from events like this from happening again.”

It was also the first time since December that the Fed issued interest rate projections.

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GDP, a measure of economic output and of economic health, will be just 0.4% this year, Mr Powell said, and is forecast to increase to 1.2% next year, well below the growth rate many politicians would hope for.

The unemployment rate is expected to rise to 4.5% at the end of this year and 4.6% at the end of next year.

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Farmer becomes first person to die during Trump’s ICE raids

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Farmer becomes first person to die during Trump's ICE raids

A farmer who fell from a greenhouse roof during an anti-immigrant raid at a licensed cannabis facility in California this week has died of his injuries.

Jaime Alanis, 57, is the first person to die as a result of Donald Trump’s Immigration Compliance and Enforcement (ICE) raids.

His niece, Yesenia Duran, posted on the fundraising site GoFundMe to say her uncle was his family’s only provider and he had been sending his earnings back to his wife and daughter in Mexico.

The United Food Workers said Mr Alanis had worked on the farm for 10 years.

“These violent and cruel federal actions terrorise American communities, disrupt the American food supply chain, threaten lives and separate families,” the union said in a recent statement on X.

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Who is being targeted in Trump’s immigration raids?

The Department of Homeland Security (DHS) said it executed criminal search warrants at Glass House Farms facilities on Thursday.

Mr Alanis called family to say he was hiding and possibly fleeing agents before he fell around 30ft (9m) from the roof and broke his neck, according to information from family, hospital and government sources.

Agents arrested 200 people suspected of being in the country illegally and identified at least 10 immigrant children on the sites, the DHS said in a statement.

Mr Alanis was not among them, the agency said.

“This man was not in and has not been in CBP (Customs and Border Protection) or ICE custody,” DHS assistant secretary for public affairs Tricia McLaughlin said.

“Although he was not being pursued by law enforcement, this individual climbed up to the roof of a greenhouse and fell 30ft. CBP immediately called a medivac to the scene to get him care as quickly as possible.”

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Four US citizens were arrested during the incident for allegedly “assaulting or resisting officers”, the DHS said, and authorities were offering a $50,000 reward for information leading to the arrest of a person suspected of firing a gun at federal agents.

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In a statement, Glass House, a licensed Cannabis grower, said immigration agents had valid warrants. It said workers were detained and it is helping provide them with legal representation.

“Glass House has never knowingly violated applicable hiring practices and does not and has never employed minors,” it added.

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Donald Trump threatens to revoke Rosie O’Donnell’s US citizenship

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Donald Trump threatens to revoke Rosie O'Donnell's US citizenship

Donald Trump has said he is considering “taking away” the US citizenship of actress and comedian Rosie O’Donnell, despite a Supreme Court ruling that expressly prohibits a government from doing so.

In a post on Truth Social on Saturday, the US president said: “Because of the fact that Rosie O’Donnell is not in the best interests of our Great Country, I am giving serious consideration to taking away her Citizenship.”

He also labelled O’Donnell, who has moved to Ireland, as a “threat to humanity” and said she should “remain in the wonderful country of Ireland, if they want her”.

O’Donnell responded on Instagram by posting a photograph of Mr Trump with Jeffrey Epstein.

“You are everything that is wrong with America and I’m everything you hate about what’s still right with it,” she wrote in the caption.

“I’m not yours to silence. I never was.”

Rosie O'Donnell arrives at the ELLE Women in Hollywood celebration on Tuesday, Nov. 19, 2024, in Los Angeles. (Photo by Jordan Strauss/Invision/AP)
Image:
Rosie O’Donnell moved to Ireland after Donald Trump secured a second term. Pic: AP

O’Donnell moved to Ireland with her 12-year-old son in January after Mr Trump had secured a second term.

She has said she’s in the process of obtaining Irish citizenship based on family lineage and that she would only return to the US “when it is safe for all citizens to have equal rights there in America”.

O’Donnell and the US president have criticised each other publicly for years, in an often-bitter back-and-forth that predates Mr Trump’s move into politics.

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Will Trump address parliament on UK state visit?

This is just the latest threat by the president to revoke the citizenship of someone he has disagreed with, most recently his former ally Elon Musk.

But the two situations are different as while Musk was born in South Africa, O’Donnell was born in the US and has a constitutional right to American citizenship.

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Amanda Frost, a law professor at the University of Virginia School of Law, said the Supreme Court ruled in a 1967 case that the fourteenth amendment of the constitution prevents the government from taking away citizenship.

“The president has no authority to take away the citizenship of a native-born US citizen,” he added.

“In short, we are nation founded on the principle that the people choose the government; the government cannot choose the people.”

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Donald Trump announces 30% tariff on imports from EU

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Donald Trump announces 30% tariff on imports from EU

Donald Trump has announced he will impose a 30% tariff on imports from the European Union from 1 August.

The tariffs could make everything from French cheese and Italian leather goods to German electronics and Spanish pharmaceuticals more expensive in the US.

Mr Trump has also imposed a 30% tariff on goods from Mexico, according to a post from his Truth Social account.

Announcing the moves in separate letters on the account, the president said the US trade deficit was a national security threat.

In his letter to the EU, he wrote: “We have had years to discuss our trading relationship with The European Union, and we have concluded we must move away from these long-term, large, and persistent, trade Deficits, engendered by your tariff, and non-Tariff, policies, and trade barriers.

“Our relationship has been, unfortunately, far from reciprocal.”

In his letter to Mexico, Mr Trump said he did not think the country had done enough to stop the US from turning into a “narco-trafficking playground”.

The president of the European Commission, Ursula von der Leyen, said today that the EU could adopt “proportionate countermeasures” if the US proceeds with imposing the 30% tariff.

Ms von der Leyen, who heads the EU’s executive arm, said in a statement that the bloc remained ready “to continue working towards an agreement by Aug 1”.

“Few economies in the world match the European Union’s level of openness and adherence to fair trading practices,” she continued.

“We will take all necessary steps to safeguard EU interests, including the adoption of proportionate countermeasures if required.”

Ms von der Leyen has also said imposing tariffs on EU exports would “disrupt essential transatlantic supply chains”.

Meanwhile, Dutch Prime Minister Dick Schoof said on the X social media platform that Mr Trump’s announcement was “very concerning and not the way forward”.

He added: “The European Commission can count on our full support. As the EU we must remain united and resolute in pursuing an outcome with the United States that is mutually beneficial.”

Mexico’s economy ministry said a bilateral working group aims to reach an alternative to the 30% US tariffs before they are due to take effect.

The country was informed by the US that it would receive a letter about the tariffs, the ministry’s statement said, adding that Mexico was negotiating.

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How ‘liberation day’ unfolded

Trump’s tariff threats and delays

On his so-called “liberation day” in April, Mr Trump unleashed “reciprocal tariffs” on many of America’s trade partners.

The US president said he was targeting countries with which America has a trade imbalance.

However, since then he’s backed down in a spiralling tit-for-tat tariff face-off with China, and struck a deal with the UK.

The US imposed a 20% tariff on imported goods from the EU in April but it was later paused and the bloc has since been paying a baseline tariff of 10% on goods it exports to the US.

In May, while the US and EU where holding trade negotiations, Mr Trump threated to impose a 50% tariff on the bloc as talks didn’t progress as he would have liked.

However, he later announced he was delaying the imposition of that tariff while negotiations over a trade deal took place.

As of earlier this week, the EU’s executive commission, which handles trade issues for the bloc’s 27-member nations, said its leaders were still hoping to strike a trade deal with the Trump administration.

Without one, the EU said it was prepared to retaliate with tariffs on hundreds of American products, ranging from beef and auto parts to beer and Boeing airplanes.

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