Federal-Reserve
In the FOMC press conference, Chair Powell discussed recent developments in the banking sector, monetary policy, the debt-ceiling standoff, recent bank mergers, and the appropriateness of the current rate. Powell noted that the Federal Reserve is committed to returning inflation to their 2 percent objective, and while there may be a possibility of a recession, avoiding one is more likely than having one. Additionally, he addressed concerns about rate cuts, the effectiveness of the overnight reverse repo facility, banking oversight, and his own accountability in addressing the problems associated with the banking crisis. Finally, he discussed the idea of regret and the need for regulation and supervision to reflect the changes in the banking sector.
In this section, Chair Powell discusses recent developments in the banking sector, stating that conditions have improved since early March and the system is resilient. Powell says that the Fed is committed to learning from recent episodes and preventing them from happening in the future. Powell then shifts focus to monetary policy and the Fed's dual mandate to promote maximum employment and stable prices. The Fed raised interest rates by a quarter percentage point and has raised interest rates a total of 5 percentage points since early last year to return inflation to 2 percent. Powell notes that the U.S. economy slowed last year and continues to show modest improvement in Q1. Despite overall low unemployment, the labor market is still not in balance and inflation remains high. The Fed is committed to returning inflation to their 2 percent objective.
In this section, Chair Powell discussed the effects of the Fed's policy tightening on interest rate-sensitive sectors, such as housing and investment, and how it will take time for the full effects of monetary restraint on inflation to be realized. The strains in the banking sector from March appear to be resulting in even tighter credit conditions, which are likely to weigh on economic activity, hiring, and inflation. The Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments when determining the extent to which additional policy firming may be appropriate. The staff's forecast was for a mild recession, where the rise in unemployment is smaller than in modern-era recessions. Powell emphasized the Fed's commitment to bringing inflation back down to their 2% goal and keeping longer-term inflation expectations well anchored.
In this section of the FOMC press conference, Chair Powell discusses the potential economic effects of a debt-limit standoff, stating that it is essential for the debt ceiling to be raised so that the US government can pay all of its bills when they're due, as a failure to do so would be unprecedented and could be highly adverse for the US economy. While Powell raised the discussion around uncertainty of a possible standoff, he clarified that it did not affect today's monetary policy decision. Additionally, when asked about the Federal Reserve Board's actions in the wake of bank failures, Powell defended their separation principle of monetary policy and supervision being handled with different tools but noted that it has its limits.
In this section of the FOMC press conference, Chair Powell addresses questions surrounding recent bank mergers and consolidations, stating that he does not have an agenda to further consolidate banks and believes it is healthy to have a range of different sizes of banks serving different customers. He also comments on J.P. Morgan's recent acquisition of First Republic, stating that it was a legitimate process and a good outcome for the banking system. In response to questions about the impact of recent bank stress on credit conditions, Chair Powell notes that raising interest rates can tighten credit, as can banks raising their credit standards. This makes it difficult to make a precise assessment of the tightening impact, but the Fed will continue to monitor the situation and factor it into their ongoing policy decisions.
In this section, Chair Powell discusses the ongoing assessment of the appropriateness of the current rate of 5 to 5¼ percent, adding that sufficient data needs to be accumulated to make a confident determination on the matter. He notes that the Summary of Economic Projections from the March meeting showed that the median participant thought this was the appropriate level of rates, but that this will be revisited at the June meeting. Furthermore, he discusses the SLOOS survey and notes that midsize banks have been tightening their lending standards, and lending has continued to grow but at a slower pace since the second half of last year. When asked why it was necessary to raise interest rates today despite the need to study the effects of previous moves, Chair Powell explains that the aim of monetary policy is to achieve a policy stance sufficiently restrictive to bring inflation down to 2 percent over time, and that slowing down the pace enabled the Fed to see more data to better balance the risks.
In this section of the FOMC press conference, Powell discusses the state of policy and inflation. Powell suggests that policy is tight due to a 2% real interest rate which is higher than what most people believe the neutral rate is. He adds that tightening can be seen in interest-sensitive activities as well as in other areas. Additionally, Powell reiterates that the Fed's target remains at 2% and that it would take some time to reach it. As for a prolonged period of 3% inflation, Powell does not appear to be looking for that, indicating that the goal is for inflation to go down to 2% over time. Nonetheless, even with lower inflation numbers, Powell believes the labor market is still strong and going from 3% to 2% will balance both sides of the mandate equally. Finally, Powell suggests that the possibility of a recession can be avoided, and this is due to excess demand in the labor market.
In this section, Chairman Powell discusses the possibility of a recession, noting that while it's not ruled out, avoiding one is more likely than having one. He then talks about the relationship between wages and inflation, stating that wages are not the principal driver of inflation. He also explains that higher profits and margins result from an imbalance between supply and demand, with inflation expected to come down as goods pipelines return to normal and supply meets demand. Finally, Powell discusses the policy reaction function, explaining that the Fed looks at both data and forecasts, with a particular focus on credit tightening effect on lending.
In this section, Chair Powell addresses the possibility of rate cuts, stating that the current forecast does not call for a reduction in rates, and that the Committee is focused on assessing whether their current policy stance is sufficiently restrictive. Additionally, Chair Powell dismisses concerns that the overnight reverse repo facility is contributing to banking stress, asserting that it is serving its intended purpose effectively. Finally, on the topic of banking oversight, Chair Powell expresses agreement with the findings of Vice Chair Barr's report and the need for stronger oversight and policy changes to avoid similar regulatory lapses in the future.
In this section, Chair Powell discusses the failure of a large bank and explains that he is focused on understanding what went wrong and identifying ways to address the issue. He acknowledges that some of the problems may have been caused by evolving technology and that some may be related to regulatory policies. Regarding the current banking turmoil among regional banks, Chair Powell states that the resolution and sale of First Republic draws a line under the period of severe stress and that the Fed will continue to monitor the situation carefully. Finally, he reflects on his own actions during the crisis and leading up to it, acknowledging they made mistakes and indicating that he is accountable for doing what he can to foster measures that will address the problems.
In this section, Chair Powell discussed the idea of regret and said that while he has had moments of regret, he chooses to focus on what can be controlled. The decision to raise the rate by 25 basis points had strong support across the board, and while some members discussed the possibility of pausing, the consensus seemed to be that they are getting closer to the end of tightening. Powell noted that they have moved a long way fairly quickly and can afford to assess the data carefully. In terms of lessons learned from the banking crisis, Powell pointed out that the run on Silicon Valley Bank was out of keeping with the speed of runs through history and that regulation and supervision need to reflect that change. He emphasized that Vice Chair Barr will take the lead on addressing these issues.
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