Speaking to reporters afterward, Bullard said that “SVB was a very unusual bank. Unlike almost any bank in the country…The tools we have deployed will succeed and (the Fed) will end up caring more about the strength of the economy.” during the spring and summer (boreal) and you won’t worry as much about financial stress as you do now.
In fact, Bullard said he had raised his estimate of how much the Fed’s overnight interest rate should rise by the end of 2023 by a quarter of a percentage point, to the range of 5.50%-5.75%, a level that would take three up more than a quarter of a percentage point from the 4.75%-5% level set by the US central bank this week.
Most of Bullard’s colleagues see only one more small hike as necessary, while the Federal Open Market Committee, which sets monetary policy, abandoned its guidance this week that “continued hikes” in the cost of credit would likely be necessary. .
Other policymakers agreed that despite a flare-up of global concern over financial stability in the past two weeks, there appeared to be no widespread crisis that would require the Fed to recalibrate monetary policy and steer clear of another rate hike, even whether the outlook for the future has become more cautious.
Stability
The Fed raised interest rates by a quarter of a percentage point on Wednesday, its ninth consecutive hike. Investors believe that may be the last, and Fed Chairman Jerome Powell said in his post-meeting news conference that there was discussion about whether to pause now.
“There was a lot of debate. It wasn’t a straight decision,” Atlanta Fed President Raphael Bostic said in an interview with National Public Radio, a US news outlet.
“At the end of the day, what we decided was that there were clear signs that the banking system is sound, the efforts that the Fed took with the Treasury (and the Federal Deposit Insurance Corporation) to deal with the difficulties of those banks seem to be working, and against that backdrop, inflation is still too high,” Bostic said.
The Fed has an inflation target of 2%. Its main indicator of inflation is currently running at twice that rate and is proving harder to bring down than expected.
Bostic said the sudden and catastrophic run on deposits at SVB, which had an unusually large share of deposits above the $250,000 FDIC insurance limit and at risk of loss in the event of bankruptcy, had “exposed a real hole in the insurance structure.
The US authorities finally decided to compensate all depositors after judging that the situation posed a “systemic risk”. But “that’s a different question from the macro policy question we were dealing with in terms of interest rates,” Bostic said. “We were able to separate them.”
The president of the Richmond Fed, Thomas Barkin, affirmed in an interview with that the situation of the banking sector “seemed very stable (…) So the conditions were right to make monetary policy the way we want to make policy monetary”. “The arguments for raising (rates) were pretty clear,” he added.
