March 23, 2023
FED: “The banking system is sound and resilient”
The statement stressed that recent indicators point to moderate growth in spending and production. Job creation in recent months has been notable, allowing the unemployment rate to remain low, although inflation remains high. On the other hand, he stressed that the US banking system is solid and resilient. Consequently, recent events will probably result in tighter credit conditions for households and businesses, impacting economic activity and inflation. The magnitude of these effects is uncertain.
In this context, the Federal Open Market Committee (FOMC) increased the benchmark rate by 25bp to a range between 4.75% – 5.0%, which implied its highest level since the end of 2007. This decision was in line with expectations and was unanimous. He also anticipated that further policy tightening might be appropriate to achieve a monetary stance tight enough for inflation to return to 2% over time. As in previous releases, the FOMC announced that it would closely monitor incoming information and assess the implications for monetary policy. That said, he reiterated that he remains very attentive to the risks associated with inflation. Finally, he indicated that he would be prepared to adjust the stance of monetary policy as appropriate should risks arise that could prevent the achievement of objectives, considering the labor market situation, inflationary pressures, inflation expectations, and the development of events financial and international.
As every three months, the Fed updated its outlook for the benchmark rate, predicting that it could end this year at 5.1%, unchanged from the December estimate. For 2024, the new assessment reflected a slight increase to 4.3% from 4.1%. However, the expectation of lower rates compared to 2023 (5.1% vs. 4.3%) remains. Regarding the economic outlook, the new estimate suggests the economy could grow by 0.4%, in line with the previous projection of 0.5%. For inflation (Personal Consumption Expenditures, PCE), the new estimate reflects a slight upward pressure considering a rate of 3.3% (vs. 3.1%).
During his press conference, Jerome Powell reiterated that the banking system is robust and remains well capitalized while endorsing recommendations for greater sector regulation. On the other hand, he ruled out cuts to the reference rate for this year.