Federal Reserve Chairman Jerome Powell holds a press conference following the release of the US Federal Reserve̵[ads1]7;s decision on interest rates, in Washington on May 3, 2023.
Kevin Lamarque | Reuters
Federal Reserve Chairman Jerome Powell said on Friday that stress in the banking sector may mean that interest rates do not need to be as high to control inflation.
Speaking at a monetary conference in Washington, DC, the central bank chief noted that Fed initiatives used to deal with problems at medium-sized banks have largely stopped the worst cases from happening.
But he noted that the problems at Silicon Valley Bank and others could still reverberate through the economy.
“The financial stability tools helped calm conditions in the banking sector. Developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, employment and inflation,” he said as part of a panel on monetary policy.
“So as a result, our policy rate may not need to increase as much as it otherwise would have to achieve our targets,” he added. “Of course, the extent of that is highly uncertain.”
Powell spoke to markets that mostly expected the Fed at its June meeting to take a break from the streak of rate hikes it began in March 2022. But prices have been volatile as Fed officials weigh the impact policy has had and will have on inflation as the summer last year it was 41 years high.
Overall, Powell said inflation remains too high.
“A lot of people are experiencing high inflation right now, for the first time in their lives. It’s not a headline to say they really don’t like it,” he said during a forum that also featured former Fed chairman Ben Bernanke.
“We believe that failure to bring down inflation would not only prolong the pain but also ultimately increase the social costs of returning to price stability, causing even greater harm to families and businesses, and we aim to avoid that by to remain steadfast in the pursuit of our goals,” he added.
This is breaking news. Please check back here for updates.