Jerome Powell’s Remarks at the Fed Meeting: A Summary
On May 3rd, the US Federal Reserve (FRS) announced a 25-basis-point increase in the federal funds rate to 5.25%, in line with experts’ expectations. How did the Fed chair comment on this decision during the press conference?
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As for the banking system
Powell referred to the banking sector as “healthy and resilient,” noting that the situation had improved since March. He also acknowledged the need for constant monitoring and cited governance flaws in the Silicon Valley Bank as a reason for increased oversight and stricter regulations.
It is interesting to note that shortly after this speech, the shares of another American bank, PacWest Bancorp, plummeted by more than 50%. Therefore, the Fed Chair's words should be critically evaluated.
Concerning inflation and the key policy rate
Jerome Powell emphasized that the banking sector does not have a significant impact on the current fight against inflation. The Fed remains steadfast in its focus on achieving its goal of a 2% consumer price index. He explained that the interest rate would not be lowered until market forecasts change.
A recession is on the horizon
During the meeting, the Fed chairman acknowledged the possibility of a mild recession, which is characterized by less job losses than previous ones. While he stated that it may be possible to avoid such a recession, he also admitted that this negative scenario cannot be ruled out completely.
About public debt
Powell also touched upon the national debt ceiling, highlighting the significance of its timely increase; otherwise, it might have detrimental ramifications for the US economy, such as default.
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