Washington, Nov 30 (EFE).- Federal Reserve Chairman Jerome Powell said Wednesday that interest rate hikes will start to slow as soon as December, insinuating that the next increase in the Fed’s benchmark rate will be 50 basis points instead of 75 basis points.
The United States central bank has raised the federal-funds rate by three-quarters of a percentage point four times this year, leaving it at a target range of between 3.75 percent and 4 percent, its highest level since 2008.
“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said in a speech in Washington DC.
“The time for moderating the pace of rate increases may come as soon as the December meeting” of the Federal Open Market Committee (FOMC), the US central bank’s monetary policy-making body.
Speaking at an event at the Brookings Institution, Powell said inflation remains too high to consider halting the rate increases at this time and that a restrictive policy will need to remain in place for a longer period of time than earlier anticipated.
He also said the peak target range for the federal-funds rate also will likely turn out to be higher than previously expected.
“It seems to me likely that the ultimate level of rates will need to be somewhat higher than thought at the time of the September meeting and Summary of Economic Projections,” he added.
After the September FOMC meeting, the Fed projected that the federal-funds rate would need to be hiked to a level of between 3.9 percent and 4.6 percent at the end of 2022 and between 3.9 percent and 4.9 percent at the close of 2023.
It projected then that over the “longer run” that benchmark rate would be brought down to between 2.3 percent and 3 percent.
In his speech, Powell downplayed the latest economic data suggesting inflation had reached its peak and recalled that consumer prices have continued to rise over the past year even though the Fed’s models had forecast otherwise.
In justifying the central bank’s focus this year on tightening monetary policy, Powell noted that high inflation is imposing “significant hardship, straining budgets and shrinking what paychecks will buy.”
He also noted that price stability is the “bedrock of our economy.”
“Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all,” the Fed chairman said.
Referring to the risk that the Fed’s inflation-fighting efforts could send the economy into recession, Powell sounded a cautiously optimistic tone on Wednesday.
“I would like to continue to believe that there’s a path to a soft or softish landing,” he said. “Our job is to try to achieve that, and I think it’s still achievable. If you look at the history, it’s not a likely outcome, but I would just say this is a different set of circumstances.” EFE