Fed Powell notes lagged effects of tightening and banking stresses

Fed Chair Jerome Powell said at a conference today, “We’ve come a long way in policy tightening and the stance of policy is restrictive.”

Also, “We face uncertainty about the lagged effects of our tightening so far and about the extent of credit tightening from recent banking stresses.”

The Fed Chair suggested that the central bank now has room to scrutinize the economic data and evolving outlook more closely, and make measured assessments. “Having come this far, we can afford to look at the data and the evolving outlook to make careful assessments,” he added.

Interestingly, Powell emphasized the influence of the banking sector on the current financial landscape. He said, “While the financial stability tools helped to calm conditions in the banking sector, developments there on the other hand are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation.”

“As a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals. Of course, the extent of that is highly uncertain,” Powell concluded.