On April 21, the Federal Reserve Mester said that before the recent pressure on the banking industry, banks had already begun to tighten credit standards as interest rates rose, making credit even less.
This is the typical way monetary policy tightening is transmitted to the broader economy.
Recent tensions in the banking system are likely to lead banks to further tighten credit standards, which could lead to slower household and business spending and reduced hiring, consistent with the effect of tighter monetary policy.
We therefore need to continue to assess the magnitude and duration of these effects on credit conditions to help us adjust the appropriate path of monetary policy going forward. This is a prudent approach.