Fed Chairman Jerome Powell seeks to reassure Americans that their money was safe after the failure of Silicon Valley Bank, Signature Bank as the Fed continues to fight inflation.
The Federal Reserve extended its year-long fight against high inflation Wednesday by raising its key interest rate by a quarter-point despite concerns that higher borrowing rates could worsen the turmoil that has gripped the banking system.
At a news conference, Fed Chair Jerome Powell sought to reassure Americans that it is safe to leave money in their banks, two weeks after a rush of depositors pulled funds from Silicon Valley Bank, which collapsed in the second-biggest bank failure in U.S. history. Signature Bank fell soon afterward.
“We have the tools to protect depositors when there’s a threat of serious harm to the economy or to the financial system,” Powell said. “Depositors should assume that their deposits are safe.”
The Fed chair also underscored that the central bank remains focused on fighting high inflation, which could require additional rate hikes. Yet he also signaled that the Fed might not need to impose many more increases if more banks were to reduce their lending to conserve cash. This could lead to slower growth, hiring and inflation, Powell said.
The Fed “is trying to have its cake and eat it too,” said Subadra Rajappa, head of rates strategy at the investment bank Societe Generale. “They wanted to show a bias towards hiking but didn’t want to actually commit to more hikes.”
In fact, the Fed also signaled that it could be nearing the end of its aggressive streak of rate increases. In its policy statement, it removed language that had previously said it would keep raising rates at future meetings. The statement now says “some additional policy firming may be appropriate” — a weaker commitment to tightening credit.
And in their latest quarterly economic projections, the policymakers forecast that they expect to raise their key rate just once more — from its new level of about 4.9% to 5.1%, the same peak they had projected in December.
Still, the Fed’s statement included some language that indicated that its inflation fight remains far from complete. It noted that “inflation remains elevated,” and it removed a phrase, “inflation has eased somewhat,” that was in its February statement.
