Federal Reserve Chairman Jerome Powell told lawmakers on Tuesday that interest rates are expected to rise more than expected as the central bank works to bring down inflation, which remains stubbornly above target. 2% from the central bank.
“The latest economic data is stronger than expected, suggesting that the ultimate level of interest rates is likely to be higher than expected,” Powell told the Senate Banking Committee in prepared remarks. “If all the data were to indicate that faster tightening is warranted, we would be prepared to accelerate the pace of rate hikes.”
“Although inflation has moderated in recent months, the process of bringing inflation down to 2% still has a long way to go and is likely to be bumpy,” Powell added.
The last The Consumer Price Index report released last month showed prices rose 6.4% year-on-year in January, a slowdown from last summer’s record inflation rate of 9.1%, but still well above the Fed’s 2% target.
The Fed predicted at its December policy meeting that interest rates should rise in a range of 5% to 5.25% this year, although Powell’s comments now suggest rates will eventually have to rise above that level. Following the Fed policy decision in Februarythe central bank’s reference interest rate is in the range of 4.5% to 4.75%.
The Fed Chairman said on Tuesday that policymakers would continue to make decisions meeting by meeting, and while Powell acknowledged that the FOMC had slowed its pace of rate hikes, he did not mention whether the rate hikes whether or not they would continue at this rate.
Powell noted that January economic data on inflation, job growthconsumer spending and manufacturing output partially reversed the course of the slowdown seen in December.
Powell attributed some of the softening to abnormally warm weather in January, but warned that “the magnitude of the reversal” suggests inflation is higher than expected. He reiterated that the Fed still needs to see a decline in inflation of non-housing services to lower inflation, which will likely require a weaker labor market.
In Tuesday’s questioning, Senate Republicans are expected to focus in part on the Fed’s reassessment of banks’ capital requirements following a letter sent by Republican ranking member Tim Scott (R-SC ) to President Powell last week.
Senate Speaker Sherrod Brown (D-OH) will caution in his opening statement against raising interest rates too high, saying there are other ways to lower prices than raising interest rates. interest rate. Brown points to strengthening supply chains, boosting US manufacturing and rebuilding infrastructure.
While “there are times when the Fed needs to act… We can’t risk undermining any of the successes of our current economy,” Brown said. “For the first time in decades, workers are finally – finally – starting to get some power. Unemployment is at an all-time low – 3.4%. It’s not just a number. It means the Americans have more opportunities and options, even in places I haven’t seen many in recent years.”
In a hat to lawmakers’ concerns, Powell said in prepared remarks that the Fed is “extremely aware” that high inflation is causing “significant hardship” for Americans.
Echoing his warmongering rhetoric of Jackson Hole back in AugustPowell said: “The historical record strongly cautions against premature policy easing. We will stay the course until the job is done.”
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