Powell vs. Yellen: Mixed Messages on Bank Deposits (Infographic)

Powell vs. Yellen: Mixed Messages on Bank Deposits (Infographic)

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Both Fed Chair Jerome Powell and Treasury Secretary Janet Yellen gave important speeches on Wednesday, March 22nd. However, when it came to the key issue of bank deposit insurance, both government officials were at odds with one another.

KEY POINTS

  • Up until this point, the US government has not guaranteed bank deposits in excess of the Federal Deposit Insurance Corporation’s (FDIC) $250,000 limit, despite backing Silicon Valley Bank (SVB) deposits after the bank’s collapse.
  • Several lawmakers have called for an increase in the deposit limit or the abolition of the limit altogether.
  • During the March FOMC meeting, Federal Reserve Chair Jerome Powell said that depositors should assume their deposits are safe, and that the government has tools to protect them in case of harm to the economy or the financial system.
    • The market rose on this assurance from Powell.
  • However, moments later, Treasury Secretary Janet Yellen said the government had not considered blanket deposit insurance “in any way.”
    • Just as quickly as they rose, markets fell on this comment.

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Yellen, Powell, Janet Yellen, Jerome Powell,

The combination of high-speed Fed rate hikes putting pressure on the banking system, the lack of assurance from Treasury Secretary Janet Yellen that the government will adopt new regulation to provide additional deposit insurance, and the appearance of mixed messages from two of the top policy officials in the U.S. shook the stock market, with all three major indices falling more than 2% each from peak to trough over the course of the day.

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That red line indicates the moment Yellen gave her controversial statement on bank deposit insurance. Source: TradingView, Market Rebellion.

By the end of the day, the S&P 500 finished at 3936.97 (-1.65%), the Nasdaq finished at 11,669.96 (-1.60%), the Dow Jones finished at 32,030.11 (-1.63%), and the Russell 2000 finished at 1,727.36 (-2.83%). The VIX volatility index also soared to 22.26, despite briefly dipping below 20.

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