The Federal Reserve on Wednesday raised its short-term borrowing rate another 0.25%, intensifying the central bank's fight against inflation despite concern that previous rate increases helped trigger the nation's banking crisis.
The Fed's benchmark interest rate has contributed to the financial emergency facing U.S. banks.
Inflation has fallen significantly from a summer peak, though it remains more than triple the Fed's target of 2%.
The rapid rise in interest rates, however, tanked the value of bonds held by Silicon Valley Bank, precipitating its failure and cascading damage for the financial sector.
In a statement, the Fed rejected concerns about the financial system. "The U.S. banking system is sound and resilient," the central bank said.
The Fed left the door open for further rate increases, noting that "additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time."
Nearly 190 banks are at risk of collapse amid high interest rates and declining asset values, according to a study released by a team of university researchers earlier this month.
A continuation of rate hikes risks further intensifying the banking crisis, nudging additional financial institutions toward the brink of collapse.
A pause on rate increases, however, could have undermined the Fed's fight against inflation, allowing high prices to persist and eat away at household budgets, economists previously told ABC News.
A survey by Bloomberg last week found that most economists expected the Fed to raise interest rates by 0.25% on Wednesday, matching the increase that the central bank imposed at its most recent meeting last month.
Over the last year, the Fed has raised its benchmark interest rate by 4.5%, the fastest pace since the 1980s.
The Fed has put forward a string of borrowing cost increases as it tries to slash price hikes by slowing the economy and choking off demand. The approach risks tipping the U.S. economy into a recession and putting millions out of work.
Persistent rate hikes also threaten the stability of the banking system.
Still, the Fed could avoid facing a choice between slowing price increases and preserving financial stability, since tighter lending practices taken up by private sector banks in response to the financial distress may cool the economy on its own accord, allowing the Fed to forego raising rates while still bringing down inflation.
"No matter what the Fed does later this month, financial conditions are tightening," Julia Pollak, chief economist at Zip Recruiter, said last week.