Following the Federal Reserve’s March meeting of the Federal Open Market Committee (FOMC), the central bank announced a 25 basis point increase to the federal funds rate.
In a press conference with reporters following the announcement of the rate increase, Fed Chair Jerome Powell addressed the recent collapse of Silicon Valley Bank and Signature Bank and the federal government’s response to the market decline of the banking sector following the sudden closures.
“History has shown that isolated banking problems, if left unaddressed, can undermine confidence in healthy banks and threaten the ability of the banking system as a whole to play its vital role in supporting the savings and credit needs of households and businesses,” Powell said. “That is why in response to these events, the Federal Reserve working with the Treasury Department and the [Federal Deposit Insurance Corp.] (FDIC) took decisive actions to protect the U.S. economy and strengthen public confidence in our banking system. These actions demonstrate that all depositors’ savings in the banking system are safe.”
Powell said because of the recent banking sector events, the FOMC no longer definitively states that “ongoing rate increases will be appropriate to quell inflation.”
He indicated it needed to be clarified what level of monetary policy change would be necessary to bring inflation down to the 2 percent level that the Fed considers normal. The consumer price index (CPI) for February was 6 percent, an eight-month low and a 3.1 percentage point drop from its peak in July 2022.
Though unwilling to provide any certainty, Powell suggested the recent decline in banking sector activity may result in the tightening of credit conditions that the Fed hoped for with this year-long series of rate increases.