The Fed is prepared to answer tough questions about its oversight of Silicon Valley Bank, which collapsed this month and sent tremors through the financial system. Officials see inflation easing to 3.3 percent by the end of the year, down from 5.4 percent in the last reading. Powell referred to repeatedly during his news conference.īank turmoil is expected to slow lending and credit availability, and that could cool the economy. Inflation has surprisingly been stubborn, which Mr. That is unchanged from their December forecasts, and implies one more rate increase this year. Officials forecast that they will lift borrowing costs to 5.1 percent in 2023. The Fed move matched last month’s increase in size, lifting rates to a range of 4.75 to 5 percent, in one of the most closely watched decisions in years as conflicting forces left investors and economists guessing at what central bankers would do.īy raising rates, the Fed is continuing its fight against inflation but holding off on a more aggressive rate move that might spook markets after weeks of bank turmoil. That implies that investors think Wednesday’s interest-rate move could be the Fed’s last for a while, despite policymakers’ projections for one more increase. The two-year Treasury yield, which is sensitive to changes in interest rates, fell sharply to around 4 percent. Stocks rose immediately after the rate announcement, but the rally soon faded and the S&P 500 index tumbled to a loss at the close of trading. He added that deposit flows at banks had “stabilized.” Powell said that the effect of the tumult at banks could be considered “equivalent” to a rate increase, given the impact it could have on the economy. The Fed’s post-meeting statement acknowledged the effects of problems in the banking sector, noting that “recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.” Mr. “It is clear we do need to strengthen supervision and regulation” of banks, he said. He said that officials were ready to learn from the collapse of Silicon Valley bank, a likely nod to the fact that the Fed was the failed bank’s primary regulator, and it didn’t address problems at the lender before it was too late. Powell said that the American banking system was “sound and resilient,” and that the Fed was prepared to use all of its tools to keep it safe. Powell said that “a pathway still exists” to a soft-landing - in which the Fed cools the economy without tipping it into recession - “and we’re trying to find it.” They also forecast raising interest rates to 5.1 percent by the end of 2023, before coming down to 4.3 percent by the end of 2024. In its latest economic projections, Fed officials now expect economic growth to be slightly slower this year, and inflation slightly higher, than they predicted in December. Powell says that the Fed “considered” pausing interest rates because of the banking problems, but said that the economic data had been strong, underscoring the tough spot the central bank is in. Powell, the Fed chair, took questions from reporters about the central bank’s decision to raise rates for a ninth consecutive meeting.
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