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Butterfield reacts swiftly as Fed hikes benchmark rate

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Butterfield said that in response to the Fed’s 75-basis-point increase in the federal funds rate, it is adjusting its base interest rates on loans by a quarter of a percentage point (0.25 per cent), absorbing two thirds of the Fed hike (Photograph by David Fox)

The US Federal Reserve, the country’s central bank, boosted its benchmark overnight interest rate by 75 basis points on Wednesday — and said further rate hikes are anticipated.

In Bermuda, the Bank of N.T. Butterfield & Son Limited was the first local financial institution to respond.

At the end of the business day, the bank said that in response it is adjusting its base interest rates on loans by a quarter of a percentage point (0.25 per cent), absorbing two thirds of the rise.

The bank said: “The change in base rates applies to Bermuda dollar residential mortgages, consumer loans, corporate loans and USD loans.

“The rate increase on loans takes effect on September 26, 2022. The rate increase for existing Bermuda residential mortgages is effective 90 days later.”

Butterfield further advised that clients could contact the consumer credit department for more information on lending rates and payment terms.

More information will also be available on Butterfield’s website and at Butterfield Banking Centres.

Jerome Powell, chairman of the US Federal Reserve (File photograph by Andrew Harrer/Bloomberg)

The three-quarters of a percentage point rise is the third such rate hike in a row as the Fed seeks to control inflation in the world’s largest economy that was calculated at 8.3 per cent in August.

It is also the fifth time this year that the central bank has boosted its benchmark rate, an historic move aimed at arresting the runaway inflation.

The 12 members of the rate-setting Federal Open Market Committee, which was unanimously in favour of the hike, explained their rationale in a statement.

It said: “Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

“Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity.

“The committee is highly attentive to inflation risks.

“The committee seeks to achieve maximum employment and inflation at the rate of 2 per cent over the longer run. In support of these goals, the committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 per cent and anticipates that ongoing increases in the target range will be appropriate.

“In addition, the committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May.

“The committee is strongly committed to returning inflation to its 2 per cent objective.

“In assessing the appropriate stance of monetary policy, the committee will continue to monitor the implications of incoming information for the economic outlook.

“The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee's goals.

“The committee's assessments will take into account a wide range of information, including readings on public health, labour market conditions, inflation pressures and inflation expectations, and financial and international developments.”

At the consumer level, the rise in the federal funds rate will affect car loan, credit card and mortgage interest rates in the United States.

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Published September 22, 2022 at 7:39 am (Updated September 22, 2022 at 7:39 am)

Butterfield reacts swiftly as Fed hikes benchmark rate

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