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Federal Reserve Chair Jerome Powell announced yet another interest rate hike during a press conference on Wednesday. That announcement has been largely credited for a drop in the Dow Jones, as stocks plunged by more than 500 points. Regional bank share prices helped to lead the decline, as investors reacted to the hike and growing concerns about the financial sector’s stability.
Powell tried to calm concerns during his press conference, noting that the Fed still believes that the banking sector is both “sound and resilient.” He did note, however, that “recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.” He also confirmed that the Fed is closely monitoring current financial conditions:
“Financial conditions seem to have tightened. We’ll be looking to see, how serious is this and does it look like it’s going to be sustained. And if it is, it could easily have a significant macroeconomic effect, and we would factor that into our policy decisions.”
Powell also tried to reassure the country by suggesting that bank deposit instability seems to have eased in recent days. According to the Fed Chair, the central bank view is that the broader banking industry is not experiencing the same type of weakness that caused Silicon Valley Bank to collapse.
Some observers noted that the current Fed assessment may indicate that the central bank intends to slow or pause its interest rate hike strategy in the coming months. Today’s move raised interest rates by another 25 basis points, in line with most analysts’ expectations.
