2023-05-19 16:50:00
© Archyde.com
By Julio Sanchez Onofre
Investing.com – Will the US Federal Reserve (Fed) make a further hike in interest rates, which currently stands at a maximum level of 5.25%? The decision has not yet been made, acknowledged this morning the president of the central bank, Jerome Powell. However, he has left open the possibility for the Federal Open Market Committee (FOMC) to assess the impact of the restrictive monetary policy.
“We haven’t made any decisions about what additional measures are appropriate to put in place, but given how far we’ve come, we can afford to analyze the data and make careful assessments,” he told a monetary policy conference in Washington, DC this morning.
They come at a time when several Fed officials have opted to continue with the increases in the reference rate, considering that the economic data does not yet warrant the announcement of a pause in the June meeting.
Powell recalled that in the last year alone, the Fed has raised interest rates by 500 basis points (bp).
“During this period we communicated that the objective was to reach a policy tight enough to bring inflation to 2%, but we also said that the rate level required, ultimately, was very uncertain. Until very recently, it was clear that a tightening would be required as the policy has become tighter,” he noted.
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This justification comes after the director of the Silicon Valley Bank (SVB), which collapsed in March and catalyzed nervousness in the financial markets, blame the Fed for its bankruptcy since the Fed had said at the end of 2021 that interest rates would remain low and that the increase in inflation would be temporary.
“The risks of doing too much versus doing too little are becoming more balanced and our policy has been adjusted to reflect that fact,” Powell added.
During the conference, Powell defended the actions of the authorities in the face of the instability of the US banking system, saying that when banking stress emerged at the beginning of March, “we used our available tools to provide liquidity to banks that may require it.”
He added that “liquidity was supported for the stability of the financial system without restricting the use of monetary policy tools to promote price stability.
The Fed leader acknowledged that the measures adopted contributed to tightening the conditions for granting credit, which weighed on both job creation and inflation.
“As a result, our policy rate may not need to increase as much as it otherwise would to achieve our goals. Of course, the extent of that is very uncertain,” he asserted.
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