Though the banking system has faced headwinds since the collapse of Silicon Valley Bank in March — which the Fed said in an April 28 report was due to a "textbook case of mismanagement," coupled with central bank supervisors failing to take forceful enough action — it is resilient and well positioned to deal with any forthcoming challenges, added Mr. Powell, who addressed the conference on stage with former Fed Chairman Ben S. Bernanke.
At its most recent meeting May 3, the Federal Open Market Committee approved a quarter-point rate increase to raise the federal funds rate to a range of 5% to 5.25%, marking the committee's 10th straight rate hike dating back to March 2022.
The Fed now faces uncertainty about the lagged effects of its policy tightening in addition to the extent of credit tightening from recent banking stresses, Mr. Powell said. "So today, our guidance is limited to identifying the factors we'll be monitoring as we assess the extent to which additional policy firming may be appropriate to return inflation to 2% over time," he said. "As I noted at the last press conference, that assessment will be an ongoing one as we move ahead, meeting-by-meeting. Having come this far, we can afford to look at the data and the outlook and make careful assessments."
Following the May 3 meeting, the committee removed language from its previous policy statement that said it "anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time."
Mr. Powell said Friday that the Fed hasn't made any decision about what it will do at its next meeting, June 13-14, but said "the risks of doing too much versus doing too little are becoming more balanced and our policy has adjusted to reflect that fact."
After Mr. Powell's comments, market participants indicated there is a 80.4% probability that the Fed will keep rates unchanged at its meeting in June, according to the CME FedWatch Tool that tracks trading in the 30-day fed funds futures.
Ryan Brandham, head of global capital markets, North America at Validus Risk Management, said in a statement that overall, "It sounds like the Fed is in data-watch mode, on hold for now, but still leaning towards the next move being a hike not a cut."
He added, "Powell recognized that the market is pricing a different path, one that involves rate cuts much sooner than Fed forecasts. The Fed is forecasting a more difficult path to bring inflation down, and Powell feels the Fed view is supported by current data."
The Bureau of Labor Statistics on May 10 reported that the consumer price index rose 4.9% from a year ago in April, slightly below March's 5% increase. Also, the unemployment rate in April remained historically low at 3.4%.