Federal Reserve Chairman Jerome Powell warned that “the final level of interest rates is likely to be higher than anticipated.” Also, if faster tightening is warranted, the Fed “would be prepared to increase the pace of rate hikes,” Powell said.
Federal Reserve Anticipates Higher Rates, Faster Hikes
Federal Reserve Chairman Jerome Powell presented the Federal Reserve’s semiannual Monetary Policy Report to the Senate Committee on Banking, Housing, and Urban Affairs on Tuesday and to the House Committee on Financial Services on Wednesday.
“My colleagues and I are well aware that high inflation is causing significant difficulties, and we are firmly committed to bringing inflation back to our 2% target,” Powell said in his identical remarks to the Senate and House committees. He detailed:
Over the past year, we have taken strong steps to tighten the monetary policy stance. We have covered a lot of ground, and the full effects of our hardening have so far yet to be felt. Still, we have more work to do.
“January data on employment, consumer spending, manufacturing production and inflation have partly reversed the smoothing trends we had seen in the data just a month ago,” Powell continued.
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 raised interest rates by 4-1/2 percentage points during last year. “From a broader perspective, inflation has eased a bit since the middle of last year, but remains well above the FOMC’s 2% long-term target,” Powell described, emphasizing:
We continue to anticipate that continued increases in the target range for the federal funds rate will be appropriate to achieve a monetary policy stance that is tight enough to return inflation to 2% over time.
While acknowledging that “inflation has been moderating in recent months,” the Federal Reserve chairman emphasized that “the process of getting inflation back down to 2% has a long way to go and is likely to be hilly”.
Warning that restoring price stability will likely require the Fed to “maintain a tight monetary policy stance for some time,” Powell concluded:
Recent economic data has been stronger than expected, suggesting that the final level of interest rates is likely to be higher than previously anticipated. If the totality of the data indicates that faster tightening is warranted, we would be prepared to accelerate the pace of rate hikes.
What do you think of the statements of the president of the Fed, Powell? Let us know in the comments section.
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