Federal Reserve Chairman Jerome Powell said on Wednesday that the central bank is focused on how tighter credit conditions following the failure of several regional banks could work like interest-rate hikes to help lower inflation.
The Fed on Wednesday fired off another 25 basis point rate hike, bringing its policy rate to a range of to 4.75% to 5%, up from almost zero a year ago. It also penciled in only one more rate increase in 2023.
See: Fed hikes interest rates again, pencils in just one more rate rise in 2023
Powell said there had been a significant tightening of credit conditions already, but that policy might have “less work to do” to help cool inflation, in an afternoon news conference.
Here’s a chart from Apollo Global Management showing that credit conditions for consumers, a key driver of the U.S. economy, already have tightened to 2008 levels, before the collapse in mid-March of Silicon Valley Bank and Signature Bank.
Consumers already were seeing a credit crunch akin to 2008
University of Michigan, Haver Analytics, Apollo Chief Economist
Powell also said that tightener credit conditions can have the same effects as rate hikes, in terms of lowering inflation.
He also said the question will be how significant that impact ends up being, and for how long. “We will be looking how serious that is,” he said, in terms of harming the economy. But he also emphasized that “rate cuts are not in our base case.”
U.S. stocks closed sharply lower Wednesday, but were clawing back ground on Thursday. The Dow Jones Industrial Average
was up 410 points, at last check, or 1.3%, while the S&P 500 index
was 1.6% higher and the Nasdaq Composite Index
The S&P 500’s consumer discretionary sector was down 1.8%, at last check.