The Federal Reserve raises interest rates by 0.25% and the yield of our Savings Portfolio also increase to 4.30%

The Federal Reserve raises interest rates by 0.25%.

Yesterday, the FED decided to increase interest rates by 0.25%. This takes the official target range of FED FUNDS to 4.75% to 5.00%.

This decision was quite uncertain. In effects, a couple of weeks ago, FED president Powell said that the central bank was likely to increase once again the pace of hikes, probably increasing official interest rates by 0.50%.

Mini banking crisis

Then, suddenly, a series of unexpected events unfolded. Some US banks defaulted: Silvergate, Silicon Valley Bank, Signature Bank. A few other regional banks were also under severe strain.

The main reason for the troubles of these banks was an outflow of deposits. Confronted with the fact that clients wanted to withdraw or transfer funds, these banks had to sell some of their assets to get the liquidity necessary to fulfil client requests.

The problem was that the value of these assets, especially as far as long-term bonds were concerned, had been lowered by the increase in interest rates that the central bank itself had orchestrated during these last months to curb inflation.

The monetary authorities came to the rescue by guaranteeing all deposits, also those above 250k, to avoid contagion to other banks and providing a line of financing to banks in which the bonds given as a guarantee by banks for these loans are considered at 100 even if their market price is lower.

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Doubts about future monetary policy

These actions, of course, put into question the future path of monetary policy decisions. If, in fact, in one hand, central banks sustain the banks, how can they, on the other hand, increase interest rates making even worse their losses on the assets they hold?

That explains why the central banks, in their last decisions, had to weight financial stability and price stability considerations.

Their approach, for now, has been one of keeping fighting inflation with higher interest rates and, at the same time, building a sort of safety net for banks that could experience difficulties.

That is the reason the Federal Reserve yesterday decided to keep increasing rates, although opting for a 0.25% increase, smaller than the 0.50% that had been ventilated some weeks ago.

The yield of our Savings Portfolios will rise to 4.30%.

Our dollar Savings Portfolios have been designed to obtain a return close to the official interest rates set by the central banks, in this case the FED.

Based on this, the yield (variable) will rise on March 30, 2023, to 4.30% for the dollar Savings Portfolio.

We will announce the final yield a few days before it becomes effective.

We remind you that the dollar Savings Portfolio does not have a currency hedge and therefore, if it is not your currency, you will be exposed to possible currency exchange risk.

You may also be interested in remembering how we calculate the variable yield of the Savings Portfolio and communication of variations.

In this link, you can consult the updated yield of the Savings Portfolios.

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