Federal Reserve Chair Jerome Powell said Monday that he does not see a risk of contagion in private credit markets at this point that could spread to the wider financial system, though the central bank is watching the situation closely.
“We’re looking for connections to the banking system, and things that might, you know, result in contagion. We don’t see those right now,” Powell said at a Harvard University event.
“What we see is a correction … and certainly there’ll be people losing money and things like that, but it doesn’t seem to have the makings of a broader systemic event,” he said.
Concern has rippled through private credit markets in recent months as more investors moved to withdraw their money following a merger by private credit lender Blue Owl Capital (OWL) that was called off. The event triggered a cascade of redemption requests. At the same time, redemptions increased as fears grew that AI could render traditional software business models obsolete, potentially leading to a surge in defaults among companies that seemed safe. Many private credit lenders hold bonds of software companies.
Powell reiterated that interest rates are in a “good place” to respond to the oil price shock emanating from the Middle East.
“No one knows how big it will be,” Powell said. “It’s way too early to know. We do think our policy is in a good place for us to wait and see.”
Read more: How oil price shocks ripple through your wallet, from gas to groceries
Powell acknowledged the series of shocks to inflation over the past six years, first with the pandemic, then tariffs, and now oil prices.
He estimated that tariffs are adding somewhere between 0.5% and 1% to inflation, but that it will be a one-time price increase that will pass through. Absent tariffs, inflation would be closer to 2%, Powell said. Inflation measured by the Fed’s preferred inflation gauge, the Personal Consumption Expenditures index excluding volatile food and energy prices, sits around 3%.
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
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