BuyersGeneralReal EstateSellers March 23, 2023

March 2023 | Fed keeps hiking, but summit seems close


Fed keeps hiking, but summit seems close

Jerome Powell

Like Ted Lasso and Succession, the Federal Reserve’s interest rate hikes have apparently entered their final season.

While the Fed increased interest rates by another 25 basis points yesterday (its ninth straight rate increase), it also signaled that troubles in the banking sector could lead it to wrap up the rate hikes soonish.

The key words: In its statement after February’s meeting, the Fed said it expected to enact “ongoing increases” in rates to combat inflation. But yesterday, it swapped that language out for “some additional policy firming may be appropriate.” Yes, we’re getting into the fine print, but small tweaks make a big difference when it comes to Fed statements. This change is a sign that rate hikes could be winding down.

The banking chaos is a big reason why

Fed Chair Jerome Powell said that “serious difficulties at a small number of banks” have emerged, which is a reference to the collapse of Silicon Valley Bank and its ripple effects across the sector.

While it sounds bizarre, the banking turmoil seems to have done some of the Fed’s work for it. Here’s how:

  • The Fed had been hiking interest rates to curb borrowing and, in turn, slow down the economy and inflation.
  • SVB’s implosion seems to have done precisely that. As banks hunker down during the storm, it’s “likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation,” the Fed wrote.

None of that is good for the economy, but it could help lower price growth as inflation is still ripping at 6%.

Big picture: Powell has other things besides interest rates to worry about—specifically, job security. He’s been taking heat from lawmakers across the political spectrum over the blowup of several banks on his watch. Politicians as diametrically opposed as conservative Sen. Rick Scott and progressive Sen. Elizabeth Warren have laid the blame for the banking failures at Powell’s feet, arguing that he failed to properly regulate the banks in the lead-up to their collapse.

In response to criticism, Powell went full Bart Simpson on a chalkboard yesterday, saying that the Fed is “committed to learning the lessons from this episode, and to work to prevent episodes from events like this from happening again.”—NF