US Federal Reserve Chairman Jerome Powell said, “If the market is expecting a rate cut, it’s completely wrong.” He also said he would use “all means” to prevent the US banking crisis from spreading.
Chairman Powell said in a press conference after the regular meeting of the Federal Open Market Committee (FOMC) on the 22nd (local time), “We will continue to monitor the conditions of the banking system closely.” We are ready to use whatever means necessary to do that,” he said.
Regarding the rumors of a crisis in small and medium-sized regional banks triggered by the recent bankruptcy of Silicon Valley Bank (SVB), he said, “Our banking system with solid capital and liquidity is sound and strong.”
In addition, he predicted an investigation into the poor management of the banks that caused problems, such as SVB, saying, “I am 100% sure that there will be an independent investigation into what happened in those banks.”
Chairman Powell drew a line from the market’s expectations of a rate cut within the year, worrying about the sustainability of inflation. Chairman Powell, who hinted at the possibility of a big step (an increase of 0.5 percentage points at a time) even just before the collapse of the SVB, said he had “considered an interest rate freeze” before making the final decision on 0.25 percentage points increase that day.
However, he clarified the background of the impression, saying, “We are committed to restoring price stability,” and “It is important to maintain trust in our actions and words.”
Specifically, he said, “The most likely scenario is that (the FOMC meeting) attendees don’t expect a rate cut this year.” He said, “If we need to raise interest rates further, we will,” and instead left room for further increases.
According to the dot plot (chart showing expectations of the base rate by FOMC members) released on the day, it is expected that the base rate will be raised once again this year.
Powell’s comments influenced the US stock market. On this day, the Dow Jones Industrial Average 30 of the New York Stock Exchange finished trading at 32,030.11, down 530.49 points (1.63%) from the battlefield. The Standard & Poor’s (S&P) 500 index closed at 3936.97, down 65.90 points (1.65%), and the Nasdaq closed at 11,669.96, down 190.15 points (1.60%).
When the FOMC announced a 0.25 percentage point rate hike as expected by the market on this day, the Dow rose more than 200 points, and the S&P 500 and Nasdaq rose about 1% each, welcoming the resolution of uncertainty. However, the New York stock market declined after Chairman Powell said there would be no interest rate cut within the year.
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