28. September 2023

Fed Gov: Higher Rates Could Exacerbate Stress for Banks, Bitcoin?

Summary

  • The Federal Reserve has hinted that it could skip a rate hike this June, as pressure mounts on banks and indebted businesses.
  • Fed Governor Philip N. Jefferson remarked that historically high-interest rates could “exacerbate” stress in an already shaky banking system.
  • Amid heightened uncertainty, Jefferson predicts slow growth, a decline in household savings and tight financial conditions.

Federal Reserve Considers Skipping Rate Hike

The Federal Reserve might “skip” a rate hike this June as pressure mounts on banks and indebted businesses. Fed Governor Philip N. Jefferson remarked on the U.S. financial system’s economic outlook during a speech at the 22nd Annual International Conference on Policy Challenges for the Financial Sector in Washington D.C. He suggested that the central bank might decide not to raise its benchmark interest rate at the next Federal Open Markets Committee (FOMC) meeting due to the rising rates making it more difficult for banks and businesses.

Rising Rates Add Stress To Banks

Historically high-interest rates in the United States could “exacerbate” stress in an already shaky banking system, said Jefferson. While claiming that the banking system had “stabilized” following multiple bank runs and foreclosures in March, he recognized the risks associated with elevated short-term interest rates which are 5 percentage points higher than they were a little over a year ago. The effects of monetary policy work with long and variable lags which aren’t fully accounted for within one year alone; thus throughout 2021, he predicts slow growth amid “heightened uncertainty” as well as a decline in household savings and tight financial conditions.

Implications Of A Skipped Rate Hike