Bank chaos has altered the fight against inflation — but the Fed says every tool is still on the table

• The Federal Reserve raised interest rates by 25 basis points on Wednesday.
• It comes after Silicon Valley Bank's collapse, and Fed Chair Powell said tightening from the bank chaos could be "equivalent" to a rate hike.

Even after weeks of banking industry chaos, the head of the nation's central bank made one thing certain — he'll do everything in his power to keep fighting inflation.

On Wednesday, the Federal Open Market Committee (FOMC) announced it is raising interest rates by 25 basis points for the second time this year. It comes just weeks after federal regulators shut down Silicon Valley Bank (SVB) and later bailed out its depositors. The collapse raised heightened scrutiny over the Fed's actions to ensure something like this can never happen again.

During the Wednesday press conference following the FOMC's announcement, Fed Chair Jerome Powell was clear that he thinks the banking system "is sound and it's resilient" — but he noted that following SVB's collapse, there's heightened uncertainty over how its aftermath could impact the economy.

"So we also assess, as I mentioned, that the events of the last two weeks are likely to result in some tightening credit conditions for households and businesses and thereby weigh on demand on the labor market and on inflation," Powell said. "Such a tightening in financial conditions would work in the same direction as rate tightening in principle. As a matter of fact, you can think of it as being the equivalent of a rate hike, or perhaps more than that."

"Of course," he added, "it's not possible to make that assessment today with any precision whatsoever."

Leading up to the Wednesday interest rate decision, many Democratic lawmakers were urging Powell to pause the interest rate hikes to ensure another increase did not exacerbate the impacts of SVB's collapse. Following the announcement, Massachusetts Sen. Warren — who has been unrelenting in her criticism of Powell over the past few days — wrote on Twitter that "Powell made a mistake not pausing its extreme interest rate hikes."

"I've warned for months that the Fed's current path risks throwing millions of Americans out of work," she said. "We have many tools to fight inflation without pushing the economy off a cliff."

Powell did note during his remarks that he "did consider" a pause in rate hikes in the days leading up to the FOMC meeting. But recent economic data showed inflation cooling down slightly in February while the economy added 311,000 jobs. The hot labor market and slower but still-high price increases showed that there's still more work to be done to get inflation levels back down to the pre-pandemic 2% goal.

"All of the evidence says that the public has confidence that we will do so, that we will bring inflation down to 2%. Over time, it is important that we sustain that confidence with our actions as well as our words," Powell said.

At this point, it's too early to tell how exactly SVB's shutdown will impact consumers. The Federal Reserve said it will conduct an internal investigation to examine what led to the collapse, and other agencies like the Justice Department and Securities and Exchange Commission have launched investigations, as well.

But as those investigations play out, Powell wants Americans to know that the central bank will use all of its tools to bring prices down — and it won't stop until it does.

"We're very focused on getting inflation down," Powell said. "And because we know in the longer run that that is the thing that will most benefit the people we serve."