Federal Reserve Chairman Jerome Powell had some bad news on Wednesday: inflation isn’t done yet and we should all expect more interest rate hikes soon.
Speaking a week after Federal Open Market Committee officials decided for the first time in more than a year not to push rates higher, the central bank leader indicated that the move likely was just a brief respite rather than an indication that the Fed is done hiking, writes CNBC.
“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell said in prepared remarks for testimony he will deliver to the House Financial Services Committee. The speech is part of his semiannual appearance on Capitol Hill to update lawmakers on monetary policy.
Following last week’s two-day FOMC meeting, officials indicated they see rate increases totaling 0.5 percentage point through the end of 2023. That would indicate two additional hikes, assuming quarter-point moves. The Fed’s benchmark borrowing rate is currently pegged in a range between 5%-5.25%.
“Inflation has moderated somewhat since the middle of last year,” he said. “Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.”
Fed officials generally prefer to look at “core” inflation, which excludes food and energy prices. That is showing inflation running at a 4.7% year-over-year rate through April, according to the central bank’s preferred measure of personal consumption expenditures prices. The core consumer price index for May was at 5.3%.
The Federal Reserve continues to aim at 2 percent inflation as its targeted, and think some action will still be needed over the course of the year.
Yahooreported that “the central bank decided to hold off raising rates at its policy meeting last week, but raised its interest rate forecasts for this year, signaling rates could rise to as high as 5.6%. That implied two additional rate hikes are likely this year. Three officials see rates rising closer to 6%.
‘Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,’ Powell said.”
The difference between the Fed’s concerns over high inflation and its decision to bypass a rate hike last week has heightened uncertainty about what it will do next. “The hazier messaging suggests that Powell is seeking to balance competing demands from those Fed officials who want to keep raising rates and others who feel the central bank has done enough, according to The Associated Press.
“Asked on Wednesday to clarify last week’s messaging, Powell told the House Financial Services Committee that keeping rates level was consistent with the Fed’s increasing focus: Slowing the pace of its hikes in order to avoid raising rates higher than needed to reduce inflation and risk causing a deep recession in the process.
‘It may make sense to move rates higher but to do so at a more moderate pace,’ Powell said, likening the Fed’s rate hikes to a journey. ‘As you get closer to your destination, as you try to find that destination, you slow down even further.’
Partisan differences over the Fed’s policies emerged at the hearing, with Rep. Patrick McHenry, the North Carolina Republican who chairs the committee, saying the central bank ‘must remain committed to eliminating this stealth tax on American workers and families,’ referring to inflation. ‘And I urge you to continue that resolve.’”