Fed's Powell says tighter credit conditions could help inflation

On Wednesday, Federal Reserve Chairman Jerome Powell said that the central bank is focused on tighter credit conditions after the failure of several regional banks that could result in interest-rate hikes to help lower inflation.

The Fed has raised its policy rate to 4.75% to 5%, a range that was close to zero a year ago after it fired off another 25 basis point rate hike. In 2023, there was only one more rate increase.

In an afternoon news conference, Powell said that there had been a tightening of credit conditions, but that policy might have less to do to help cool inflation. Credit conditions for consumers, a key driver of the U.S. economy, have been tightened to 2008 levels before the collapse of Silicon Valley Bank and Signature Bank, according to a chart from Apollo Global Management. In 2008, consumers were seeing a credit crunch akin to Powell, but in 2008 Powell said that tighter credit conditions can have the same effects as rate hikes, in terms of lowering inflation. He said the question will be how significant that impact will be, and how long it will be. He said that it was important to look at how serious that is in terms of harming the economy. He emphasized that rate cuts are not in our base case. The Fed raised its policy rate on Wednesday, but the US stock market was headed for losses into the close. The Dow Jones Industrial Average DJIA was off more than 480 points, or 1.5%, at last check, while the S&P 500 index SPX was 1.5% lower and the Nasdaq Composite Index COMP fell 1.3%. At last check, the S&P 500's consumer discretionary sector was down 1.8%.