Federal Reserve Chair Jerome Powell said Friday that strains in the banking system could mean the central bank won’t have to raise interest rates as much to tame inflation.
“The risks of doing too much versus too little are becoming more balanced,” he said at a conference with former Fed Chair Ben Bernanke. “Given how far we’ve come, we can afford to look at the data and make a careful assessment.”
He added the Fed hasn’t made a decision on whether to hike rates for an 11th straight time at a June meeting.
His comments came after other Fed policymakers have expressed conflicting views on whether to pause after the Fed has raised its benchmark rate by 5 percentage points in 14 months to fight high inflation, the fastest climb in 40 years.
On Thursday, Lorie Logan, president of the Federal Reserve Bank of Dallas, said she doesn’t think the economic data so far supports a pause.
“The data in coming weeks could yet show that it is appropriate to skip a meeting,” Logan said in prepared remarks to the Texas Bankers Association. “As of today, though, we aren’t there yet.”
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The Fed’s preferred measure of overall inflation eased in March but a more closely watched core reading that excludes volatile food and energy items rose 0.3% monthly and the annual increase dipped just slightly, to 4.6% from 4.7%. That’s well above the Fed’s 2% target.
Meanwhile, employment growth has slowed but was still solid in April with 253,000 jobs added and the unemployment rate reclaimed a half-century low of 3.4%.
Philip Jefferson, a member of the Fed’s board of governors also had a dour view of inflation but suggested the Fed should take time to assess the impact of its rate hikes so far.
Other high-ranking Fed officials have taken a more sanguine view. John Williams, president of the New York Fed and a close adviser to Powell, suggested Tuesday that inflation has peaked and is “moving gradually in the right direction.”
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In their latest forecast in March, Fed officials estimated that its key federal funds rate would peak at its current range of 5% to 5.25% this year. Powell said officials believed the recent collapse of Silicon Valley Bank and two other regional banks likely has made banks more reluctant to lend, a development that probably would dampen the economy and inflation, leaving less for the Fed to do.
Powell reiterated that view Friday, saying, “Our policy rate may not need to rise as much as it would have otherwise to achieve our goals.”
Forty-two percent of banks said they somewhat tightened lending standards for large and midsize companies over the past three months, according to the Fed’s recent Senior Loan Officer Opinion Survey. And 45% said they somewhat toughened lending criteria for small firms.
But Powell said early this month the Fed has made no official decision to pause and its decision would hinge on economic data. The Fed is expected to scrutinize coming reports on May inflation and job growth making a rate decision at its mid-June meeting.
Contributing: Associated Press
