The Federal Reserve's 25-basis-point rate hikes Wednesday, coupled with its announcement expressing concern over inflation, did nothing to calm investor jitters over bank stocks. The Federal Open Market Committee raised the federal funds rate - the overnight loan rate between banks - to 5.75%. The Board of Governors also approved a 25-basis-point increase in the discount rate, which the Fed charges banks for loans, to 5.25%.
"Over time, increases in demand will continue to exceed the growth in potential supply, even after taking account of the pronounced rise in productivity growth," the committee said in its press release. Sung Won Sohn, senior vice president and chief economist at Wells Fargo & Co., said, "Now the Fed is on record as saying that inflation is more of a concern than economic growth. This paves the way for additional hikes in interest rates."