Fed's Powell says inflation is still too high after Fed hikes rates 0.25%

Yahoo Finance Live discusses comments made by Federal Reserve Chair Jerome Powell implying that inflation is still too high after the Fed's latest interest rate hike of 25 basis points.

Video Transcript

SEANA SMITH: All right, let's also talk about the banking crisis. So lots of developments going on this week. We started the week talking about Credit Suisse and UBS, the rescue deal there from UBS coming in and agreeing to buy up Credit Suisse. That helped assuage some of the fears out there. But certainly, the volatility continued throughout the regional, some of the risk there, over the fact that investors continued to withdraw their deposits.

My vibe check of the banking sector right now, it's not terrible. I would say it's bad. And I say it's bad because there's still a lot of hope that maybe we are going to be able to avoid something getting even worse within the banking sector. Yes, there is certainly a lot of stress. Yes, there are certainly a lot of questions about what needs to happen to the future of insured deposits, lots of questions about whether or not that should actually be expanded.

We heard Treasury Secretary Janet Yellen. She kind of poured cold water on this, saying that right now, the Treasury is not considering any sort of expanding the deposit insurance there, which was a blow, which obviously, did have an impact here on the broader markets. But at least for right now, that broad contagion that we were so worried about going back 2 and 1/2 weeks when Silicon Valley Bank failed, that scenario, that talk has not necessarily gotten worse, which I think we should all be breathing a little bit of a sigh of relief right now.

ALLIE CANAL: And we have heard upbeat sentiment from Fed officials. We just heard from James Bullard, St. Louis Fed president. He said he's optimistic that the stress in the banking system is going to abate. This is a quote when he spoke earlier today. "I would put 80% of probability-- of probability on the case where financial stress abates. If it doesn't abate, that's a completely different world, where our financial stress gets more intense. And I would be willing to react to that."

So that's a very bold, optimistic statement from a Fed official. You mentioned Janet Yellen. She actually held a closed-door meeting today with members of the Financial Stability Oversight Council to really calm the jitters in the banking sector. So this is a priority right now among regulators.

DAVE BRIGGS: So are you agreeing with the bad vibe? Or where are you at on that?

ALLIE CANAL: I would probably agree with the bad vibe.


ALLIE CANAL: I don't think-- I don't think it's horrible.

SEANA SMITH: Give me your disagreement, David. Wouldn't be a--

DAVE BRIGGS: Well, no no. Mine is slightly closer to good. And that's because everyone we talk to about this story says this is almost all emotional right now. Yes, it is a game of Whac-A-Mole. Some other bank will undoubtedly pop up, as Deutsche Bank did today. But most of it is overly emotional reaction. Ultimately, the one question I do have is about lending conditions here in the United States and how they're impacted, how much harder it is to get a home loan, how much it is to get a car loan, startups, how much they're impacted. And then will that impact bank earnings in Q1 and start to have a little bit of a snowball effect?

SEANA SMITH: Yeah. And also, I think-- and the big story to keep in mind heading into the weekend, heading into next week is, of course, Deutsche Bank. We saw the stock sell off earlier in the day. Closed down, what, just about 3%. Citi saying that that reaction was a bit overdone all over the credit default swaps, a rise in insurance prices there. So I think for right now, we're going to be OK. But I'm sticking with bad.

ALLIE CANAL: Yeah, yeah. Analysts said DB we're pretty calm, I would say, considering the news. And last up, we have Chairman Jerome Powell and the Fed's 2.5% rate hike on Wednesday. Now guys, my vibe is neutral. Not bad, not good because you could really argue both sides here.

On the one hand, that 25 basis point hike was widely expected. We know markets like certainty. There are really no surprises there. But on the other hand, we are in the midst of this banking crisis. Some economists believed that the Fed should have paused rates to just take a wait-and-see approach to see how this all played out. But really that's uncertain, given this macro environment.

And for me, what pushes my vibe slightly more positive is the fact that the Fed finally setting the stage for ending its aggressive rate-hiking cycle, doing away with language like ongoing rate increases in interest rates, saying instead, quote, "the committee anticipates that some 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." But again, hence the neutral rating, that's not so great news, considering we saw the inflation that is quite hot, 6% right now. Although, we did see signs of cooling in February. Because of that, it's likely that we're going to see more rate hikes.

The Fed did anticipate this when they released their dot plot projections. They think that inflation will continue to rise and that interest rates will peak at 5.1%. This year, St. Louis Fed president James Bullard said that he expects 5.625%. So a lot of moving parts here. But I think considering everything that has happened so far over the past several weeks, it could have been much, much worse.

DAVE BRIGGS: Agree. I would again, like Seana's, tilt a little bit more towards the good simply because I think he's done a very good job. Even though they started this fire, I think they're doing a pretty good job of putting it out. I am concerned about their lack of supervision and their lack of foresight on what was happening at SVB. I thought that was a pretty poor job by the Fed, Shauna.

SEANA SMITH: Yeah, that was a poor job by the Fed. But I think Chair Powell did an excellent job at the hearing, really talked about both sides of the story here, made us-- made a strong case for why the bank remained committed to getting inflation under control, why the bank-- why the central bank was raising rates by another 25 basis points. And he did offer some reassuring comments about the stress that we're seeing in the banking sector, that he still sees it safe and sound right now. So I think he addressed both sides very well. He has a tough job, very, very tough job. I don't think many people would be envious of--

ALLIE CANAL: You can't please anyone, investors, especially. And that's why I think the trading has been so volatile.


DAVE BRIGGS: Not a job I'd want. Allie Canal, thank you. Have a great weekend.