Recent Stress in the Banking Sector The tightening in financial conditions we have seen in response to our monetary policy actions is likely to be augmented by the effects on credit conditions from recent strains in the banking sector. The U.S. banking system is sound and resilient. The Federal Reserve, working with other agencies, has taken decisive actions to protect the U.S. economy.
Nevertheless, it is reasonable to expect that recent stress events will lead banks to tighten credit standards further.4 Even though it is too early to tell, my view is that these incremental credit restraints will have a mild retardant effect on economic growth because the recent bank failures were isolated and addressed swiftly by aggressive macro- and micro-prudential policy actions.