Today's Scoop:

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Hey friends, happy Fed day.🐫🐪

Here's what you need to know today...

1. The Federal Reserve raised interest rates again by 0.25%.

2. The Fed doesn't expect to lower short-term interest rates anytime soon.

3. Policymakers say don't worry, banks are fine.

S&P 500: 3,936.971Mo: -2% | 1Yr: -12% | 5Yr: +52%

The market tumbled lower after the Federal Reserve's policy announcement this afternoon.

Roughly as expected, the Fed raised baseline interest rates again by 0.25% [🤓] and promised to keep interest rates high(er) for at least another year. Savings accounts should pay a little more, and short-term debt like credit cards or auto loans will likely get more expensive. Make sure your savings account pays at least 4%.

Just a few weeks ago, investors were worried about the Fed ramping up interest rates even more to control inflation. However, the banking crisis of the past two weeks has given policymakers a reason to be cautious about raising rates. We explain why here. 

The Fed reassured investors that the problem is under control and banks are stable. In the press conference, Fed Chair Powell said the conditions that brought down Silicon Valley Bank were relatively unique, and the government's response has prevented any potential contagion.

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The Federal Reserve

The Federal Reserve, aka the Central Bank, aka The Fed, is in charge of our whole money system. When the economy is struggling, the Fed lowers baseline interest rates to make it cheaper for consumers and businesses to borrow and spend. The Fed also pumps more money into the system by buying bonds with new dollars that it essentially speaks into existence. The additional cash keeps the pipes flowing as the borrowing and spending heats up, stimulating economic activity.

Once the economy's strong enough to stand on its own, the Fed starts to raise interest rates and pull back some of that money to ensure the economy doesn't overheat. Inflation is the Fed's heat gauge, and the gauge got VERY HOT.

The Fed raised interest rates faster than it has in over 40 years to try and control the highest inflation in over 40 years. Policymakers were trying to slow the economy, and it worked. That inflation gauge has been cooling, and economic activity has slowed.

But it may have worked too well. The rapid change in interest rates has stressed the banks whose businesses depend on interest rates. Four major banks collapsed in the past week and a half, and one more is on a lifeline.

The Fed has a tough choice: keep raising rates and restricting the economy to get inflation back to normal and risk pushing more banks under, or stop and hope inflation keeps cooling.

So everyone's looking to see when the Fed will stop raising rates and how long it will take before it starts lowering them again.

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