Federal Reserve Chair Jerome Powell said the growing concerns over private credit do not constitute a "systemic crisis" that could spread from funds to broader financial institutions, as private lending accounts for a relatively small share of the asset market.
"We are watching for signs of that, but there is currently no issue that could bring down the entire financial system," Powell said during a guest lecture in an introductory economics class at Harvard University in Massachusetts on Wednesday.
"People will lose money, but it does not appear likely to develop into a broader systemic problem," Powell said. "Private credit is a relatively small part of private assets, and both the Fed and regulators are closely monitoring the issue."
When a student asked whether problems in private credit could spill over into the banking sector, Powell responded, "We currently cannot find any connection to the banking system."
On the recent conflict between the U.S.-Israel alliance and Iran, Powell indicated the Fed would not immediately factor the fallout into monetary policy given the high level of uncertainty. "We may face questions about what we need to do, but not yet," Powell said, "because we do not know what the economic effects will be."
"Our policy is in a good position to wait and see how the situation unfolds," Powell added. "The effects of energy supply disruptions are usually short-lived, but monetary policy operates too slowly to offset them in real time."
Powell's remarks swiftly dampened market expectations for a rate hike. According to the CME FedWatch tool, federal funds futures markets lowered the probability that the Fed would raise the benchmark rate above the current 3.50%–3.75% range by year-end from 24.6% the previous day to 3.1%.