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Powell: If We Need To Raise Rates Higher Than Expected, We Will

FED
  • Q: Inflation has been sticky, do you need help from the fiscal side?
  • A: We don't give advice to the fiscal authorities; we take fiscal policy as it comes to our front door and we stick it in our models. The Fed has responsibility for price stability.* The fiscal impulse is actually not what's driving inflation right now, as it was early in the pandemic.
  • Q: Why is the new bank funding facility done under 13-3 as opposed to Discount Window? Why $143B on Fed balance sheet supporting FDIC uninsured depositors?
  • A: We had to have more flexibility so had to do under 13-3. With the FDIC we're lending to the bridge bank, a loan that's 100% guaranteed by the FDIC, no risk to the Fed.
  • Q: If inflation remains high will you hike as needed, or are your hands now tied?
  • A: No. If we need to raise rates higher, we will. I think for now we see the likelihood of credit tightening. We'll watch what that is, and what's happening in inflation, and in the labor market, and eventually get tight enough to bring inflation down to 2%.
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