By Denny Gulino
WASHINGTON (MaceNews) – After fulfilling expectations for another rate hike of just a quarter point, Federal Reserve Chair Jerome Powell Wednesday said the FOMC did not decide on an explicit pause in future rate hikes, but is assessing the cumulative effects of those already accomplished as well as the effect of any credit tightening.
In fact, Powell did concede the possibility that monetary policy has already become “sufficiently restrictive” yet tempered that view by saying there’s still “a long way to go” to get the inflation rate back down to 2% and that remains the Fed’s goal.
The chairman also conceded he’s “had a few” regrets about his own performance meeting the challenge of stress in the banking industry but is dedicated to the task of fixing the problems. He said he hopes that the FDIC’s takeover of the three banks that were the heart of the problems has now “drawn a line” versus future problems. Deposit flows have stabilized, he said.
During his latest post-FOMC news conference, Powell was asked several times about the debt-limit impasse on Capitol Hill and said it was urgent that “we never get to a place where we’re actually talking about or even having a discussion where the U.S. government is not paying its bills.”
“Higher interest rates and slower output growth appear to be weighing on business fixed investment,” he said. “The labor market remains very tight. “
He continued, “Even so, there are some signs that supply and demand in the labor market are coming back in to better balance” and wage increases are easing.
Powell said despite the historical record of Fed tightening shoving the economy into recession, that “this time seems different.” He said that with demand so resilient and jobs plentiful that he thinks that this tightening cycle does not necessarily lead to recession.
“Nonetheless,” he said, “inflation pressures continue to run high and process of getting inflation back down to 2% has a long way to go.”
Whilte the FOMC did not decide to pause rate hikes in this meeting, it did change the language of the policy statement to say it was considering whether it “may” have to tighten further. While it’s possible a tightening of credit will to some extent take the place of some future tightening, what actually will happen remains to be seen.
Powell said the Fed’s Senior Loan Officer Survey, nicknamed “Sloos” won’t be published for another few days it reflects the fact that some banks have in fact changed their loan standards, having the effect of tightening credit.
“And so we will be driven by incoming data meeting by meeting and we will approach that question at the June meeting,” Powell said.Meanwhile, “the economy will continue to grow at a modest rate,” he said was the most likely scenario, even though the Fed staff may have a more dire outlook.I
The Fed's financial stability ools and its monetary policy are "working well together. We have used our financial stability tools to support banks through our lending facilities. We have been able to use our monetary tools to monitor price stability."
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Contact this reporter: denny@macenews.com
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