(MENAFN) Federal Reserve Chair Jerome Powell has warned that serious banking difficulties in the US could undermine the entire system if left unchecked. Speaking at a news conference in Washington, D.C., after the conclusion of the Fed's two-day monetary policy meeting, Powell emphasized the potential risks of isolated banking problems, which, if left unaddressed, can undermine confidence in healthy banks and threaten the ability of the banking system as a whole to support the savings and credit needs of households and businesses.
Despite recent banking crises that have seen the sudden demise of several small banks, including Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank, the Fed raised its benchmark interest rate by another 25 basis points. Powell noted that the Federal Reserve, together with the Treasury Department and the Federal Deposit Insurance Corporation (FDIC), has taken decisive actions to protect the US economy and strengthen public confidence in the banking system.
Powell emphasized that recent actions have ensured ample liquidity in the system, which has strong capital, and that all depositors' savings and the banking system are safe. However, it is still too early to assess the impact of the banking crisis, and Powell remains optimistic about a soft landing, where the bank raises rates too much and too high, leading to an economic slowdown but avoiding a recession.
Powell noted that many banks are well-telegraphed to the market and have managed to handle tightening conditions. He also stated that the decision by government agencies took into consideration the potential risks of contagion of the banking crisis on the entire system.
Looking ahead, Powell indicated that the Fed will keep paying attention to incoming macroeconomic data when considering further rate hikes, despite the recent decline in inflation in goods over the past six months. The Fed's commitment to protecting the US economy and strengthening public confidence in the banking system underscores the importance of effective regulatory oversight and measures to prevent isolated banking problems from undermining the broader financial system.
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