Fed’s Powell considers financial system impacts on future interest rate decisions
Yahoo Finance Fed reporter Jennifer Schonberger highlights the sentiments for future interest rate hikes from Fed Chair Jerome Powell and other Fed officials as they continue to take the banking crisis into consideration.
Video Transcript
SEANA SMITH: All right, continuing our Fed coverage here with the Fed raising rates by 25 basis points, the Fed Chair Jay Powell reiterating the fact that the Fed is going to do what it takes to bring down inflation. Jen Schonberger was at the press conference in the room, got a question to the chair himself. Jen, your big takeaway.
JENNIFER SCHONBERGER: Hey there, Seana. Good afternoon. Fed Chair Powell said that emergency actions that the central bank took to contain the bank runs demonstrates that all deposits in the system remain safe. He said the central bank will continue monitoring conditions and will use all tools as needed to keep the banking system sound. Now Powell also echoed Treasury Secretary Yellen in saying that the action that regulators took to implicitly guarantee deposits was because of risk for contagion to other banks and financial markets, more broadly.
In a moment of frankness, he was asked what he thought when Silicon Valley Bank failed, and he admitted that Fed officials asked what exactly happened here. Now, he said that he does expect credit conditions to tighten. And I asked Chair Powell how he views financial conditions now and whether credit conditions were to tighten enough, if that would prompt a rate cut and a re-evaluation of the balance sheet runoff. Take a listen.
JAY POWELL: Financial conditions seem to have tightened and probably by more than the traditional indexes say because those traditional indexes are focused a lot on rates and equities, and they don't necessarily capture lending conditions. So we think that, though. So there are other measures, which, if they're focused on bank lending conditions and things like that, they show some more tightening.
The question for us, though, is how significant will that be, and what will be the extent of it, and what will be the duration of it. And then once you know that, there's a fair amount of research about how that, with broad uncertainty bands, how that works its way into the economy over what period of time.
JENNIFER SCHONBERGER: Now, official-- Fed Chair Powell said that officials did consider taking a pause leading into this meeting, but when weighing the stronger than expected inflation and jobs data and given that inflation remains still well above the Federal Reserve's 2% target, it did prompt a 25 basis point rate hike. Having said that, he is looking at credit in this economy. And if credit tightens enough, that could do the Fed's job for it. He said that the tightening doesn't necessarily have to come through Fed rate hikes. It could come through the credit side of the economy. He was also asked whether a soft landing is still on the table. He says it's too early to say at this point. Back to you.
DAVE BRIGGS: And Jen, we all turn word detectives on this day. And so everyone's eyebrows raised when it was additional policy firming, and Powell was asked about that. And he said, I would focus on the words "may" and "some," as opposed to ongoing. As for future rate hikes, what do you make of the change?
JENNIFER SCHONBERGER: Yeah, hey there, Dave. I think what he's looking for is flexibility here. He made a lot of points about credit tightening and how that could do the Fed's work for it. And we're still very early in the innings here. He admitted that we're not really sure what the effects are going to be here, how this is going to ripple through, and how this is going to impact growth.
And thus, they want to be able to stay nimble here and have both sides of the coin, which is if it doesn't have that big of an impact, then they can continue raising and even raise higher than the 5% to 5 and 1/4% that they're projecting as the peak right now. On the flip side, if the economy and credit deteriorates, they have the wiggle room to also perhaps, if needed, cut, even though he says no cuts on the table this year.
DAVE BRIGGS: Remaining data dependent. Jen Schonberger, terrific job today, as always. Thank you so much.
