Top Fed official says central bank has "distinct tools" to address banking sector troubles

• "It is the job of bank leaders to deal with interest rate risk, and nearly all bank leaders have done exactly that," Waller said.

Why it matters: In the speech, Waller said the Fed tools to address jitters in the banking system — like the failures of Silicon Valley Bank and others — should be separate from other tools. That includes interest rate hikes central to monetary policy.

• "Let me state unequivocally: The Fed's job is to use monetary policy to achieve its dual mandate, and right now that means raising rates to fight inflation," Waller said.

Yes, but: Financial stability and the Fed's economic goals are connected, even if the tools used to address each are separate. For instance, the rapid interest rate increases over the last year contributed to the stress in the banking system.

• Now, tighter credit conditions as a result of those bank failures means the Fed might have to do less to cool the economy than if those bank failures had not happened.

Waller isn't yet convinced that is the case, but he noted tightening lending conditions since March "so far are in line with what banks have been doing since the Fed began raising interest rates more than a year ago."

• "[I]t is still not clear that recent strains in the banking sector materially intensified the tightening of lending conditions."