US bank stocks fell after the Federal Reserve announced it would raise the federal funds rate by 25 basis points to a range of 5% to 5.25%.

The benchmark interest rate rose above 5% for the first time in nearly 16 years. The Federal Open Market Committee has raised benchmark interest rates by 500 basis points since March 2022.

Recent bank failures have rattled markets, but the Federal Open Market Committee proceeded with a quarter-point rate hike. This week's meeting follows the failure and takeover of First Republic Bank.

After the Fed's announcement, the KBW Nasdaq Bank Index closed down 1.89% on May 3, while the S&P 500 fell 0.7%. The index declined after 2 p.m., which was when the Fed made its announcement, after having been up earlier in the day.

Fed Chair Jerome Powell said conditions in the banking sector "have broadly improved since early March, and the US banking system is sound and resilient." Powell described Vice Chair for Supervision Michael Barr's review of Silicon Valley Bank supervision as a "first step" to "prevent events like these from happening again."

The Fed will review upcoming data and decide about future policy actions "meeting by meeting," Powell said.

"We are prepared to do more if greater monetary policy restraint is warranted," he added.

Among individual bank stocks, the biggest movers included First Horizon Corp., down 7.04% at market close, and JPMorgan Chase & Co., down 2.12%.

Recent data show inflation has persisted. In March, personal consumption expenditures excluding food and energy grew to 4.6% from March 2022, the US Bureau of Economic Analysis reported April 28. That number, while down from the peak of 5.4% annual growth in March 2022, remains well above the Fed's 2% target.