In this Dec. 1, 2020, file photo, Chairman of the Federal Reserve Jerome Powell speaks during a Senate Banking Committee hearing on Capitol Hill in Washington.InternationalIndiaAfricaMary ManleyThe chair’s announcement comes the same week JPMorgan Chase announced their acquisition of First Republic Bank. Jamie Dimon, the CEO of JPMorgan Chase, said the sale “nearly” resolves the US banking crisis that began with the failure of Silicon Valley Bank.Federal Reserve Chair Jerome Powell admitted on Wednesday that the American banking system remains “strong and resilient,” but that the recent US financial hiccups could still pave the way for a recession.Earlier Wednesday, the Federal Reserve hiked interest rates by 0.25% in another effort to fight inflation. The hike would put bank’s back on their toes, as the banking sector may continue to face one of its biggest challenges since the 2008 financial crisis.
“Our banking system is sound and resilient, with strong capital and liquidity,” the reserve chair said in his Wednesday remarks.
“We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools as needed to keep it safe and sound. In addition, we are committed to learning the lessons from this episode and to work to prevent episodes—events like this from happening again.”“With the support of the Treasury, the Federal Reserve Board created the Bank Term Funding Program to ensure that banks that hold safe and liquid assets can, if needed, borrow reserves against those assets at par,” Powell added in his announcement.EconomyUS Fed Announces 0.25% Interest Rate Hike – Tenth Since Pandemic18:20 GMT“This program, along with our long-standing discount window, is effectively meeting the unusual funding needs that some banks have faced and makes clear that ample liquidity in the system is available.”However, Powell further warned it is possible the US may experience a mild recession.”You know, the case of avoiding a recession is in my view more likely than that of having a recession,” Powell said during the press conference. “It’s possible that we will have what I hope would be a mild recession.”The timing of Powell’s announcement is awkward, as the increase in interest rates has played a role in the banking crisis, which began earlier this year with the downfall of Silicon Valley Bank as it upended the value of their bonds.After SVB’s failure its neighbor Signature Bank also collapsed. Soon after First Republic Bank also plummeted and was momentarily taken over by the Federal Deposit Insurance Corporation (FDIC) before being auctioned to JPMorgan Chase. Both the FDIC and JPMorgan will share losses on the acquisition.In a rare, bipartisan effort, Sens. Elizabeth Warren (D-MA) and Rick Scott (R-FL) proposed legislation on Wednesday to establish an independent inspector general to oversee the Federal Reserve.