Jefferson's comments show how the recent failure of Silicon
Valley Bank and Signature Bank have complicated what had been a
monetary policy debate tightly focused on inflation, and the
need to raise interest rates higher to control it.
The sudden stress in the banking sector has raised the
possibility of a broader slowdown in credit as banks grow more
cautious, particularly smaller institutions seen as possibly
more vulnerable to the sort of run that took down SVB.
Data last week from the Fed showed a record outflow of
deposits from small and smaller regional U.S. banks in the week
after Silicon Valley's collapse, with deposits among banks
outside the 25 largest dropping by nearly $120 billion in the
week ended March 15 .
While a "credit crunch" could aid the Fed's fight against
inflation but leave less money in the pockets of businesses and
households, too sharp or disorderly a contraction could lead to
a recession.
However Jefferson also said that inflation "is too high" and
that he would like to see it return to the central bank's 2%
target "sooner as opposed to later."
He did not say whether he thinks further interest rate
increases are appopriate or not, but said he hoped inflation
could be brought under control "in a way that does not damage
the economy any more than is necessary."
(Reporting by Howard Schneider;
Editing by Chris Reese and Stephen Coates)
