Powell (Fed) warns that the resilience of the financial system cannot be taken for granted

MADRID, 29 Jun.

Powell (Fed) warns that the resilience of the financial system cannot be taken for granted


The US banking system remains solid and resilient, while the tensions that affected the sector last spring have eased, as stressed by the chairman of the US Federal Reserve, Jerome Powell, for whom resilience cannot be taken for granted of the financial system.

"We cannot take the resilience of the financial system for granted," warned the US central banker during his speech at a conference in Madrid, organized by the Bank of Spain and CEMFI.

In this regard, the Fed Chairman highlighted that the actions of the US financial authorities in response to the bank stress that emerged in March allowed the financial system to be stabilized without restricting the use of the central bank's monetary policy tools as part of the effort to reduce inflation.

"The banking system remains strong and resilient, deposit flows have stabilized and tensions have eased," said Powell, for whom, however, the bank runs and bankruptcies of 2023 were painful reminders that all the stresses that will inevitably come with time can be predicted.

"Therefore, we must not become complacent about the resilience of the financial system," Powell emphasized, pointing out the importance of collaboration between regulators and legislators to maintain that resilience of the system, including at the international level.

On the other hand, the president of the Fed recalled that, after the decision of the US central bank to pause raising interest rates at its last meeting, "a large majority of the Committee participants expect that it is appropriate to increase interest rates of interest two or more times by the end of the year".

In this sense, he has indicated that, although inflation has moderated somewhat since the middle of last year, inflationary pressures remain high and the process of bringing inflation back down to 2% has a long way to go.

It has also warned that the economy is also facing headwinds due to tighter credit conditions for households and businesses, which are likely to affect economic activity, hiring and inflation.

"The tighter credit conditions are the natural result of a tighter monetary policy. But the banking tensions that emerged in March may well lead to a further tightening of credit conditions," said Powell, for whom the scope of these effects continues being uncertain.