According to Federal Reserve Chair Jerome Powell in prepared remarks to a Senate hearing, if the data keeps demonstrating a strong economy and persistently rising inflation, the Fed may increase the amount of its interest rate increases and boost borrowing costs to higher levels than anticipated.
After imposing a half-point increase in December and four three-quarter-point raises prior to that, the Fed increased its benchmark rate by a quarter point in early February. The central bank has increased its benchmark interest rate, which has an impact on numerous consumer and commercial loans, eight times in the last year.
Powell says in the testimony to the Senate Banking Committee, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipate.” “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
Interest rates are “likely to be higher” than previously predicted, according to Fed Chair Powell. According to Powell, the present trajectory indicates that the Fed’s work battling inflation is not yet complete.
Markets are typically upbeat going into the speech because they believe the central bank can control inflation without driving the economy to the ground. Following the publication of Powell’s comments, stocks dropped significantly, and Treasury yields increased. According to data from January, inflation was still averaging 5.4% yearly as measured by personal consumption expenditures prices, the favored metric for policymakers. That is a significant increase from December’s level and well beyond the Fed’s long-term aim of 2%.
Although he highlighted that some of the hot January inflation statistics could be misleading, Powell said the current pattern illustrates that the Fed’s task of combating inflation is not over.
“We’re taking the only measures we have to bring inflation down,” “Will working people be better off if we just walk away from our jobs if inflation remains at 5, 6%?” Powell said.
Powell reaffirmed that rather than following a predetermined path, rate decisions will be made “meeting by meeting” and will be based on data and their effects on inflation and economic activity.
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