The chair of the Federal Reserve says that the credit crunch expected in the aftermath of recent bank failures may limit how much the US central bank will need to raise its benchmark interest rate, as officials weigh the need to forgo further tightening.Jay Powell on Friday highlighted the potential fallout from the failures of Silicon Valley Bank and other lenders and emphasised the high degree of uncertainty clouding the economic outlook.
“While financial stability tools help to calm conditions in the banking sector, developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation,” he said at a conference organised by the Fed in Washington. “As a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals.”
He added that the extent of the effect on credit conditions was “highly uncertain”.