Red-Lined Text Shows How Fed's Statement Changed After Banking Crisis

Despite the recent banking turmoil driven in part by the Federal Reserve's aggressive interest rate hikes, the central bank continued its efforts to curb inflation on Wednesday, raising rates by another quarter point.

The Fed said that "the U.S. banking system is sound and resilient, with strong capital and liquidity," despite recent upheaval on Wall Street that prompted fears of a banking crisis as catastrophic as the one in 2008.

Board Chairman Jerome Powell and his Fed colleagues have been raising interest rates for a year in hopes of driving down inflation. The Fed was originally expected to hike rates by 50 basis points this week after sounding the alarm on the rising cost of living just last month.

But the sharp rate rises of the past year were partially to blame for the collapse of Silicon Valley Bank, and there were concerns that another rate hike could further harm banks holding long-maturing Treasury bonds that had sunk in value as rates soared. Market watchers say this week's 25 basis points increase shows that Powell is trying to both fight inflation and prevent a prolonged banking crisis.

The Fed's statement on Wednesday has been one of the most closely watched in years. Observers were waiting to see how the central bank would respond to the recent fallout from the banking sector turmoil and whether recession fears would sway Powell.

In the statement, the Fed said that "recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation."

The statement contained some significant changes from last month's, notably shifting away from wording like "ongoing increases" toward "some additional firming."

The document below shows how the Fed's statement changed from February to March. The black text indicates the same language used in both statements, while the words crossed out in red were removed in March. The underlined words in red show what was added in March.

The Fed also signaled that another rate increase is likely to come later this year. Projections suggest that the rate could peak at 5.1 percent, a number that remains unchanged from the last estimate, in December.

"The Committee will closely monitor incoming information and assess the implications for monetary policy," the Federal Open Market Committee said on Wednesday.

Powell said the Fed will continue to monitor the banking system and "use all of our tools as needed to keep it safe and sound." He added that the central bank is "committed to learning the lessons from this episode and to work to prevent episodes from events like this from happening again."