Federal Reserve Chairman Affirms More Interest Rate Increases Likely Ahead

Federal Reserve Chairman Affirms More Interest Rate Increases Likely Ahead

Federal Reserve Chairman Jerome Powell recently confirmed that additional interest rate hikes are likely to take place until inflation levels decrease. In his prepared remarks for testimony he will deliver to the House Financial Services Committee, Powell stated that the recent decision not to push rates higher was only a temporary respite, rather than an indication that the Fed is done hiking. The central bank leader further added that nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year.

Powell’s speech is part of his semiannual appearance on Capitol Hill to update lawmakers on monetary policy. Following last week’s two-day Federal Open Market Committee (FOMC) meeting, officials indicated their intentions to see rate increases totaling 0.5 percentage point through the end of 2023. This would indicate two additional hikes, assuming quarter-point moves. The Fed’s benchmark borrowing rate currently sits in a range between 5%-5.25%.

Powell acknowledged that although inflation levels have cooled, it still remains above the Fed’s 2% target. He further added that the central bank still has a long way to go in the process of getting inflation back down to 2%. Fed officials generally prefer to look at “core” inflation, which excludes food and energy prices. The core consumer price index for May was at 5.3%, and the preferred measure of personal consumption expenditures prices shows inflation running at a 4.7% year-over-year rate through April.

Monetary policy moves, such as rate hikes and the Fed’s efforts to shed bond holdings on its balance sheet, tend to work with lags. As such, officials decided to skip hiking at this month’s meeting as they observed the impact of policy tightening on the economy. Powell mentioned that the labor market is still tight, although there are signs that conditions are loosening, such as an increase in labor force participation in the prime 25-to-54 age group and some moderation in wages. However, he noted that the number of open jobs still far exceeds the available labor pool.

Powell also stated that the Fed has adjusted its approach to policy after implementing rate hikes at the most aggressive pace since the early 1980s. He mentioned the need to move rates higher, but to do so at a more moderate pace given how far they have come. He also emphasized that rate decisions will be made based on incoming data and meeting by meeting, rather than on a preset course.

Inflation expectations, considered a key variable for where prices are heading over time, are “well-anchored,” according to Powell. The closely watched University of Michigan consumer confidence survey showed that the inflation outlook for a year from now dipped to 3.3%, the lowest since March 2021. However, Powell also noted that getting inflation lower will require slowing down the economy to below-trend growth.

Powell concluded by stating that the banking turmoil earlier this year served as a reminder that the Fed needs to make sure its supervisory and regulatory practices are appropriate. He also reiterated that the Fed will continue to monitor data and adjust policies as needed to maintain price stability and promote maximum employment.

World

Articles You May Like

The Future of NFL Ownership: Exploring Private Equity Options
Disturbing Discovery of Human Remains on Clifton Suspension Bridge: Police Investigation Underway
The Unlikely Rise of Ollie Watkins: From Non-League to European Championship Final
The Legacy of Monte Kiffin: A Defensive Mastermind

Leave a Reply

Your email address will not be published. Required fields are marked *