Fed Raises Interest Rates for Possibly Last Amid SVB Scrutiny; Rate hikes “were well telegraphed and many banks managed to handle it,” says Jerome Powell

The US Federal Reserve today raised interest rates by an estimated 25 basis points, or 0.25%, for the ninth time since last year. But Fed Chairman Jerome Powell said he would delay rate hikes this final cycle as a credit crunch following the recent banking crisis could contain inflation without further Fed action.

It’s mixed news for companies and investors looking to dodge the recession, including media companies looking to increase advertising.

Reducing rising inflation to 2% remains the Fed’s primary goal, Powell said at a news conference after the latest rate hike, but said “there may be other ways to get there.”

The Federal Open Market Committee warned in its official statement that it will “closely monitor incoming information and evaluate the implications for monetary policy. [and] expect that additional monetary tightening may be justified to make monetary policy tight enough to bring inflation to 2 percent over time.”

But the FOMC “will take into account the cumulative tightening of monetary policy [to date]the lags with which monetary policy affects economic activity and inflation, and economic and financial developments” – probably the collapse of two major regional banks.

After California’s Silicon Valley Bank (SVB) and New York’s Signature Bank collapsed earlier this month, the Fed, Treasury Department and FDIC scrambled to restore confidence in the system, notably by announcing that the government would all deposit will support. Typically, deposits of more than $250,000 are not insured, but the announcement was seen as key to avoiding a run on other banks.

Hoping for a soft landing, the volatile and somewhat confused stock market rallied somewhat late in the trading session following Powell’s comments. But the shares were bumped just before the close. That could involve a closer reading of Powell’s comments and/or Treasury Secretary Janet Yellen’s separate afternoon testimony before a Senate subcommittee that the FDIC is not considering offering “universal insurance” for bank deposits.

Powell said the Fed is investigating bank supervision and oversight. At the ground level, the management of Silicon Valley Bank has failed miserably. They grew fast, piled on interest rate and liquidity risks and didn’t hedge those risks,” he said, resulting in a fast-moving and massive bank run by a large group of connected depositors.

“My only interest is that we find out what went wrong here. How did this happen and what is the right policy to implement it?” He would not say what the measure entails.

Powell takes criticism that the Fed fueled the crisis by raising rates too high too quickly. As he pushed back, he noted that the hikes were indicated, “and it’s still happening”.

“Our rate hikes were well communicated to the market and many banks got it right.”

Overall, he said, “In our view, the banking system is healthy, resilient and has strong liquidity.”

One type of benefit – tighter lending conditions due to banks’ renewed reluctance to lend – could help reduce inflation, he said.

Senator Elizabeth Warren lashed out at Powell at a recent hearing on Capitol Hill, saying his drive to slow the economy in search of lower inflation goes hand-in-hand with lower employment, meaning high interest rates keep people out of work if the Fed . Rule.

Powell reiterated today that “we understand our actions” have an impact on interest rates. But high inflation also hurts low-income earners, he noted.

He said the Fed had officially considered taking a complete pause in rate hikes in the days leading up to that meeting… But the labor market and inflation [data] came stronger than expected. So our decision was to take 25 basis points and change the lead from jogging walks to some extra walks.

The DJIA closed 530 points, or 1.63% lower. The Nasdaq fell 1.6% and the S&P 500 fell 1.65%. Media and technology stocks trailed indexes late in the session. WBD and Netflix closed down nearly 4%, Paramount down 3%, Comcast and Disney down 2%. Many have made ground in the aftermarket. Alphabet, Apple, Meta and Amazon closed 1% to 2% lower.