Jay Powell says rates may not ‘need to rise as much’ due to bank pressure

The expected credit crunch following recent bank failures may limit how much the US central bank will need to raise its benchmark interest rate, the Federal Reserve chairman says, as officials weigh the need for further tightening.

Jay Powell on Friday highlighted the potential fallout from the failures of Silicon Valley Bank and other lenders and emphasized the high level of uncertainty enveloping the economic outlook.

“While financial stability tools help calm conditions in the banking sector, developments there, on the other hand, are contributing to tighter credit conditions and are likely to exert pressure on economic growth, hiring and inflation,” he said in a statement. said at the conference. Fed in Washington. “As a result, the policy rate may not need to rise as much as it would have otherwise to achieve our targets.”

He said the extent of the impact on credit terms was “highly uncertain”.

Powell’s comments come as Fed policymakers are debating whether to press ahead with an 11th straight rate hike at next month’s meeting or end their campaign to tighten monetary policy to fight persistent inflation. have to stop.

Since March 2022, the Fed has raised its benchmark policy rate by more than 5 percent to a target range of 5-5.25 percent — an increase that Powell on Friday described as significant.

“We have come a long way in policy tightening. . . we face uncertainty about the backward effects of the tightening so far and the extent of credit tightening from these banking stresses,” he said.

Powell said no decision has yet been made about the next policy meeting in June, echoing language used during the Fed’s last meeting that economists interpreted as support for a pause. As chairman, he will be tasked with unifying a divided group of officials, with many policymakers recently raising doubts that the Fed had raised its policy rate high enough to get inflation under control. .

Laurie Logan, president of the Federal Reserve Bank of Dallas and a voting member of the Federal Open Market Committee, said Thursday that there was not yet solid evidence for a pause.

Speaking with the Financial Times, James Bullard, president of the St. Louis Fed, said on Thursday that slow progress on the inflation front “could warrant raising rates some more to take some insurance to make sure that we actually keep inflation under control”.

The expected credit crunch following recent bank failures may limit how much the US central bank will need to raise its benchmark interest rate, the Federal Reserve chairman says, as officials weigh the need for further tightening.

Jay Powell on Friday highlighted the potential fallout from the failures of Silicon Valley Bank and other lenders and emphasized the high level of uncertainty enveloping the economic outlook.

“While financial stability tools help calm conditions in the banking sector, developments there, on the other hand, are contributing to tighter credit conditions and are likely to exert pressure on economic growth, hiring and inflation,” he said in a statement. said at the conference. Fed in Washington. “As a result, the policy rate may not need to rise as much as it would have otherwise to achieve our targets.”

He said the extent of the impact on credit terms was “highly uncertain”.

Powell’s comments come as Fed policymakers are debating whether to press ahead with an 11th straight rate hike at next month’s meeting or end their campaign to tighten monetary policy to fight persistent inflation. have to stop.

Since March 2022, the Fed has raised its benchmark policy rate by more than 5 percent to a target range of 5-5.25 percent — an increase that Powell on Friday described as significant.

“We have come a long way in policy tightening. . . we face uncertainty about the backward effects of the tightening so far and the extent of credit tightening from these banking stresses,” he said.

Powell said no decision has yet been made about the next policy meeting in June, echoing language used during the Fed’s last meeting that economists interpreted as support for a pause. As chairman, he will be tasked with unifying a divided group of officials, with many policymakers recently raising doubts that the Fed had raised its policy rate high enough to get inflation under control. .

Laurie Logan, president of the Federal Reserve Bank of Dallas and a voting member of the Federal Open Market Committee, said Thursday that there was not yet solid evidence for a pause.

Speaking with the Financial Times, James Bullard, president of the St. Louis Fed, said on Thursday that slow progress on the inflation front “could warrant raising rates some more to take some insurance to make sure that we actually keep inflation under control”.