“Individual problems in banks can cripple the banking system if not addressed”
“All deposits in American banks are safe” clarified on Wednesday Jerome Powellchairman of the Fed shortly after the central bank’s new interest rate hike of 25 basis points.
“Individual problems in banks can hit the banking system if they are not addressed, and that is why we took decisive action,” he stressed, in the shadow of the collapse of Silicon Valley Bank and Signature Bank, as well as Credit Suisse in Europe.
In principle, the turmoil in the banks is equivalent to an interest rate hike, as it will lead to a credit squeeze and downward pressures on demand and inflation, Mr. Powell said.
The exact impact of the credit crunch cannot be calculated yet, and the Fed will assess whether it will need another rate hike, the central banker clarified.
He said at today’s meeting there was a question of a “pause” in interest rate hikes in light of problems in the banking system and the expected impact of credit tightening on inflation.
However, he ruled out the possibility to reduce interest rates during this year.
The main indices of Wall Street closed with a fall of 1.6%.
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