Fed chair Jerome Powell had been uncompromising in his language on the need for more rate jumps before that banking chaos emerged, telling the Senate Banking Committee on March 7 that the central bank “would be prepared to increase the pace of rate hikes” if the economy continued to move at its current clip.
The dramatic developments on Wall Street have not led Powell to abandon those plans entirely – but they may have curbed his ambitions for another so-called “oversized” hike as the prospect of an impending recession loomed into view.
Expectations of a 50-basis-point increase surged after Powell’s comments to the Committee, but six of eight leading banks surveyed by Bloomberg in the build-up to today’s announcement indicated that they now anticipated the more dovish step of a quarter-point bump.
In its statement accompanying the decision, the Fed sought to allay fears about the recent financial unrest, describing the US banking system as “sound and resilient” but noting that those developments “are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.”
It also left the door open for further hikes down the line, saying that “some additional policy firming” may be appropriate to cool the economy sufficiently towards its 2% inflation target.
Source: mpamag.com