Commentary
Federal Reserve (Fed) Chairman Jerome Powell recently stepped back from the cut and thrust of immediate policy matters to offer insight into Fed priorities—a review of what events and guidelines will prompt future decisions. Some of what Powell said provided comfort. Other things were not so reassuring. And still, others raised fundamental questions about current financial structures.
Powell took up one immediate matter—the prospect of a pause in the pace of interest rate hikes. In this context, he alluded to recent bank failures. He denied that policymakers might hold rates steady to relieve pressures on banks. He described counter-inflationary efforts and this kind of financial stabilization as “separate objectives.” At the same time, he noted that fears in the banking community might convince some managers to reduce risk levels and otherwise slow the flow of credit into the economy—actions that would have a counter-inflationary effect, perhaps significant enough to obviate the need to raise rates….