After raising interest rates, Fed chair downplays adverse impact on financial stability

The rise of interest rates has, as yet, had little impact on financial stability, especially as the banking system remains well capitalized, the chair of the Federal Reserve Board indicated Wednesday.

Speaking to reporters after the agency’s interest rate-setting Federal Open Market Committee (FOMC) voted to raise rates by 75 basis points, Fed Board Chair Jerome Powell acknowledged that asset values are down, which “in some sense lowers vulnerabilities” to financial stability.

“It’s when asset values are really high that you would worry that they’re vulnerable to a fall,” Powell added. “Actually, many asset values have come down. I think you’ve got a well-capitalized banking system, you have households (that) are generally in about as strong as financial shape as they’ve been in a very long time or perhaps ever, given the money that’s on people’s balance sheets.

“So, from a financial stability standpoint, you have a pretty decent picture.”

Powell added that there are many macroeconomic issues that don’t rise to the level of financial stability concerns. “That’s not to say that people at the lower end of the income spectrum aren’t suffering, because they are; they are suffering from high inflation.”

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