Fed watching US banking sector closely to gauge need for further rate hikes

By Ovunc Kutlu

ISTANBUL (AA) – The US Federal Reserve is keeping watch over troubles in the US banking sector to gauge the need for further rate hikes, said a top official of the US central bank on Friday.

"Financial stresses in the banking sector are a factor that my colleagues and I are closely watching as we determine the appropriate stance of monetary policy going forward," US Federal Reserve Governor Christopher Waller said at an economics conference in Oslo, Norway.

"A rapid, sizable increase in interest rates resulting from persistently elevated inflation contributed to stresses in the banking system that we needed to address using our financial stability tools," he added.

The recent banking crisis in the US saw the sudden collapse of three banks in the world's biggest economy – Silicon Valley Bank and Signature Bank in March, followed by First Republic Bank on May 1.

Waller, however, noted that although lending conditions imposed by banks have tightened since March, "it is still not clear that recent strains in the banking sector materially intensified the tightening of lending conditions."

The Fed on Wednesday kept its federal funds rate unchanged, the first time it has done that since January 2022, after raising rates by 500 basis points in 10 meetings from March 2022 to this May.

The amount of liquidity withdrawn from markets due to the Fed's aggressive monetary tightening is one of the main reasons behind bank failures in the US, according to economists.