Following the recent banking crisis, Powell’s statements come true after the highly anticipated interest rate decision in traditional and crypto money markets came in 25 basis points.
Fed Chairman Jerome Powell made the announcement.
Powell started his speech, starting with the problems in the banking sector.
“We are planning a course to ensure public safety within the framework of the problems experienced. We work to provide support when needed. We are working to prevent the problems faced by banks. We will ensure that the American banking system maintains its strength, and we will do what is necessary within this framework.”
He announced that they will do their best to reduce inflation to 2% again.
Powell added, “We think that the supply and demand in the labor markets of the committee participants will stabilize and the trend will improve, we see that although inflation hovers above our long-term target of 2%, it is still high even though it is at a moderate level compared to last year.” continued with explanations.
“Inflation is creating difficulties for us in every sense and we will do everything we can to achieve our stated goal, using all the means at our disposal. We raised interest rates today and we will continue to improve the process. Difficulties in the banking system will have an impact. However, it is still early to see what these effects will be and the consequences.”
Stating that they will continue to act by looking at the incoming data, Powell underlined in his words that they will continue to strive to reduce inflation. Concluding his words by saying that we know that the decisions we take affect the public, Powell said that we will continue to take our steps to reach the best result on this issue and started to receive questions from the press.
Stating that the statements in his speech were shaped as a result of a serious majority of votes, Powell said that we will achieve our target of 2%, and again referred to the recent banking crisis.
“Recent problems, of course, affected the process. Despite everything, we ultimately decided to increase by 25 basis points, and we can continue to advance the process with policy tightening. The coming periods will also be shaped by the incoming data.”
Another question is, can you clarify the tightening with the ongoing interest rate hike, won’t the interest rate increase while the tightening continues?
“I want to clarify the doable part. It may have less impact than we expected. Here, too, inflation may decline even faster, which will shape the course we plan to follow. However, since we do not know these, we cannot speak clearly. In the policies we follow, we focus on macroeconomic results.”
Two weeks ago, you said in your speech that the rate hike would be more aggressive, you made these statements before the banking crisis. Did what happened change your views?
“If the results were not as we expected, the rate hike would have been more. What happened is very new, there is really a lot of uncertainty. We were thinking of a higher interest rate increase where there was a strong workforce and strong inflation, but the banking problems experienced changed this approach a bit, of course.”
I want to go back to the meeting in February, you mentioned disinflation, is this still in question?
“Yes, the same scenario continues, inflation has been decreasing for 6 months. It is decreasing, albeit slower than we expect and want.”
Why didn’t you see it would be a problem, are you sure it won’t cause any more problems, or are you just hoping for it?
“We cannot make any predictions about the tightening of credits, but claiming something reflects a process that is only estimation and progresses.”
What would you say about SVB?
“SVB grew too fast and they didn’t hedge their deposits. We knew about them, we even intervened. We even know that the public knows this. However, they experienced an unexpected problem and serious problems occurred. What can be done for us, we make our own evaluation. We will make a policy framework after we find out what happened and what is wrong, and we will start to implement it and we will continue to apply it for other players.”
Saying that the reason for the interest rate hikes is not the tightening credit conditions, but the ideal of reducing inflation to 2%, Powell said that no one should doubt that we will do our best to achieve this.
Will there be an independent research on the banking crisis apart from the FED’s research?
“I definitely think that such a research should be done, if there is a request, I will welcome it.”
If inflation is high, would you go for additional increases, or are your hands tied due to the banking crisis?
“Of course it is not connected, we will take the necessary step if necessary. We saw the effects from the data. That’s why we’ll watch and see. We will evaluate the processes and as a result, we will follow the necessary policies to reduce inflation to 2%.”