Jerome Powell sees higher peak for interest rates

New York: Federal Reserve Chair Jerome Powell said the US central bank is likely to raise interest rates higher than previously thought and is prepared to speed up the pace of hikes if economic data warrants.

“Although inflation has been moderating in recent months, the process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy,” Powell said in prepared testimony before 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 anticipated. 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.”

Bond yields jumped, stocks fell and the dollar extended gains following the release of Powell’s remarks, Bloomberg reported.

Fed officials are trying to cool inflation without triggering a recession that drives up unemployment. Senate Democrats are wary of the rapid rise in interest rates, and some are likely to step up pressure on the Fed chief to back off, while Republicans blame President Joe Biden for over-stimulating the economy and have urged Powell to keep up the inflation fight.

The Fed began an aggressive campaign to raise its benchmark lending rate a year ago, moving to a range now of 4.5% to 4.75%. Even so, the U.S. economy has shown remarkable resilience. Payrolls increased by more than 1 million jobs in the three months ending in January, the Labor Department said, and recent consumption and inflation data point to persistent price pressures.

“From a broader perspective, inflation has moderated somewhat since the middle of last year but remains well above the FOMC’s longer-run objective of 2 percent,” Powell said in his prepared remarks released in Washington.

The Fed leader will face lawmakers who are already counting down to the 2024 presidential election, the outcome of which could hinge on Powell’s ability to steer inflation back toward the Fed’s 2% target without causing a significant downturn.

US central bankers say they need to keep pushing interest rates higher to slow price increases. In December, officials estimated rates would peak at 5.1% this year, according to their median forecast, but several have said that a series of strong economic reports could mean rates need to move even higher.

Futures markets anticipate Fed officials will raise rates by a quarter percentage point at their March 21-22 meeting, and are pricing in at least two more quarter-point hikes after that, to a range of 5.25% to 5.5%.

Image courtesy of (CNBC)

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