"Conditions have broadly improved" in the banking sector since March, Federal Reserve Chair Jerome Powell said at his post-monetary decision press conference. He repeated that the system is "sound and resilient," but also vowed to strengthen the financial system.
He then repeated the central bank's strong commitment to reduce inflation to its 2% goal. Labor market remains very tight. There are some signs that supply and demand in the labor market are starting to come into better balance, he added. Still labor demand substantially exceeds supply.
Earlier, the central bank boosted the federal funds rate target range by 25 basis points, bringing it to 5.00%-5.25%, as expected. Its softened guidance kept the door open for a potential pause after the Fed ratcheted up rates by 500 basis points in 15 months.
"While the Fed hiked today, they are taking a cautious approach to balance inflation and economic growth. This means they are eager to keep their options open for the June meeting, with ongoing assessments of credit tightening and a need for data accumulation," said Yimin Xu on behalf of Cestrian Capital Research, Inc. "However, Powell does sound more comfortable than before that the Fed is very close to the finish line, and it will take a few months of positive data to confirm this view."
The press conference ends at 3:20 PM ET.
3:20 PM ET: The speed of the deposit run at Silicon Valley Bank was one of the lessons Powell said the Fed has learned from the recent banking turmoil.
3:18 PM ET: "Support for the 25-bp rate increase was very strong across the board," Powell said. There was some talk of a pause, but not for this meeting, he added.
3:15 PM ET: "I fully realize that we made mistakes and we need to do better," he said when talking about banking supervision and the recent bank failures. In addition, Powell said he welcomed the "unflinching" review that Fed Vice Chair for Supervision Michael Barr issued last week.
3:10 PM ET: "We shouldn't even be talking about a world in which the U.S. doesn't pay its bills," he said when asked to address the government's debt limit.
3:07 PM ET: "We on the committee have a view that inflation is going to come down not so quickly... If that's right, it's not appropriate to cut rates." Inflation in non-housing service remain high, he noted.
3:04 PM ET: "I think you'll see inflation come down and corporate margins coming down," reflecting full competition, he said.
At 3:03 PM ET, the S&P gained 0.3%, Nasdaq +0.7%, and the Dow is flat.
3:00 PM ET: "It's possible to have a cooling in the labor market" without significant damage to the unemployment rate, though Powell admits that would be against history.
2:59 PM ET: The Fed chief stressed the importance of getting inflation down to its 2% goal, and he won't be satisfied until it gets there. "We're not looking to get to 3% and drop our tools," he said.
2:55 PM ET: Powell defended the decision for another rate hike at this meeting. "I think slowing down was the right move...we always have to balance the risk of not doing enough and not getting inflation under control with slowing the economy too much," he said.
2:51 PM ET: Because of the increased credit tightening from the banking stresses, the Fed won't have to raise rates as high as it might have without the stress.
2:49 PM ET: "I don't have an agenda to consolidate banks," he said. Having small, medium, and large banks are are healthy, and regional banks serve very important purposes. JPMorgan Chase's (JPM) acquisition of First Republic is a "good outcome for the banking system," Powell said. By law, the FDIC was required to accept the bid with the least cost to the FDIC, he noted.
2:45 PM ET: Powell said that his own economic forecast is for modest growth, not a recession, not very different from his view in March.
2:42 PM ET: "It's essential to raise the debt ceiling in a timely way," Powell said. "No one should assume the Fed will protect" from the potential long-term and short-term effects of the U.S. not paying its bills on time.
2:39 PM ET: "A decision on a pause was not made today," he said. The statement was changed to show that the Fed isn't necessarily expecting further firming.
Update at 2:37 PM ET: The Fed will take a meeting-by-meeting approach in deciding on the federal funds rate. The Federal Open Market Committee will depend on the data to make its decisions.
"It will take time for full monetary restraints to be realized," Powell said. Credit tightening had already been taking place over the past year and the strains that resulted in the banking are likely to lead to further credit tightening, Powell said.
On Monday, SA contributor Logan Kane said he expects the Fed to hike again in June after May's expected increase. And last week contributor John M. Mason discussed how the Fed is back on track in its QT program.