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The FED defends its position.

 

FED
Fed­eral Reserve offi­cials yes­ter­day defen­ded their decision to press ahead with their mon­et­ary tight­en­ing cam­paign this week des­pite ongo­ing stress across the US bank­ing sec­tor, cit­ing con­cerns about elev­ated infla­tion.

On Wed­nes­day, the cent­ral bank raised rates by a quarter point for the second time in a row, lift­ing the fed­eral funds' rate to a tar­get range of 4.75 per cent to 5 per cent, even as mid­sized lenders struggled to weather the fal­lout from the implo­sion of Sil­icon Val­ley Bank.

«There was a lot of debate . . . but at the end of the day, what we decided was there are clear signs that the bank­ing sys­tem is sound and resi­li­ent,» said Raphael Bostic, pres­id­ent of the Atlanta Fed, in an inter­view with NPR yes­ter­day. In remarks yes­ter­day, Bul­lard played down the eco­nomic impact of the bank­ing tur­moil, sug­gest­ing it was unlikely to res­ult in a mater­ial shock.

«Fin­an­cial stress can be har­row­ing but also tends to reduce the level of interest rates,» he said in remarks. «Lower rates, in turn, tend to be a bullish factor for the mac­roe­conomy».

He later told report­ers that he put the odds of the cur­rent bout of fin­an­cial stress end­ing without fur­ther deteri­or­a­tion at 80 per cent. The two-year yield in par­tic­u­lar is sens­it­ive to interest rate expect­a­tions, and in recent weeks has recor­ded its most significant moves since 1987.

Investors in the futures mar­ket yes­ter­day fully priced out the pos­sib­il­ity of an addi­tional quarter-point increase in May. Traders also wager that the Fed will be forced to cut interest rates this year, which chair Jay Pow­ell said the Fed does not expect to do.

In the press con­fer­ence that fol­lowed Wed­nes­day's rate decision, Pow­ell acknow­ledged that offi­cials had con­sidered paus­ing their cam­paign of rate rises in light of the recent bank­ing tur­moil, but said that ulti­mately an increase was «sup­por­ted by a very strong con­sensus».

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  1. Nigel25 March 2023 at 11:34

    It's the logical move I feel, considering everything that is going on. We may wish things to be different but they are not. The FED is doing their best to keep things afloat. And I don't think the FED will cut interest rates this year. Maybe in 2024.

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