Fed’s Williams dismisses link between rapid rate hikes and bank stress

FEDERAL Reserve Bank of New York president John Williams rejected the idea that the central bank’s aggressive interest-rate increases precipitated recent financial strains highlighted by the failure of a large US bank.

“I personally don’t think it was the case that the pace of rate increases” were behind the banking strains, he said on Monday (Apr 10) during a moderated discussion organised by the Economics Review at New York University.

Fed officials lifted interest rates by a quarter percentage point last month, bringing their policy benchmark to a target range of 4.75 per cent to 5 per cent, up from near zero a year earlier. Forecasts released at the same time showed the 18 officials expected rates to reach 5.1 per cent by year-end, according to their median projection, implying one more increase.

Silicon Valley Bank’s collapse last month was the second largest in US history. The institution and Signature Bank were taken over by regulators after a run on their deposits.

Officials are trying to assess how much the recent banking turmoil might tighten credit conditions, a shift that could slow the economy.

“We have historically seen when there is stress in the banking system” that maybe banks pull back on lending, Williams said.

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