Federal Reserve Chairman Jerome Powell warned that “the final level of interest rates is likely to be higher than previously expected.” Moreover, if faster tightening is justified, the Fed is “prepared to increase the pace of rate hikes,” Powell said.
The Fed expects rates to rise and hikes to accelerate
Federal Reserve Chairman Jerome Powell presented the Fed’s semiannual monetary policy report to the Senate Banking, Housing and Urban Affairs Committee on Tuesday and the House Financial Services Committee on Wednesday.
In the same remarks to the House and Senate committees, Powell said, “My colleagues and I are acutely aware that high inflation is causing great hardship and are strongly committed to returning inflation to its 2% target.” He elaborated.
Over the past year we have taken strong action to strengthen our monetary policy stance. Over the past year we have taken strong steps to tighten our monetary policy stance. We have learned a lot and the full effects of the tightening we have done are yet to be realized. Nevertheless, we still have work to do.
Powell continued, “January data on employment, consumer spending, manufacturing output, and inflation partially reversed the softening trend seen in data just a month ago.”
Citing inflation well above the Fed’s 2% target and an “extremely tight” labor market, he noted that the Federal Open Market Committee (FOMC) meeting had raised rates 4-1/2 percentage points over the past year. Powell explained that “from a broader perspective, inflation has moderated somewhat since the middle of last year, but is still well above the FOMC’s long-term target of 2%,” and emphasized the following points:
We continue to expect that it will be appropriate to continue to raise the target range for the Federal funds rate in order to achieve a monetary policy stance that is sufficiently restrictive to return inflation to 2% over time.
The Federal Reserve Chairman acknowledged that “inflation has moderated in recent months,” but stressed that “the process of returning inflation to 2% is going to be a long and bumpy road.”
Cautioning that the Fed will likely need to “maintain a restrictive stance of monetary policy for some time” to restore price stability, Powell concluded.
The latest economic data is better than expected and suggests that the eventual level of interest rates is likely to be higher than previously expected. If the totality of the data indicates that faster tightening is justified, we are prepared to increase the pace of rate hikes.
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