Powell: Fed is prepared to accelerate pace of rate hikes
Washington, Mar 7 (EFE).- The Federal Reserve chairman told Congress on Tuesday that the US central bank remains laser-focused on reining in inflation and is ready to reverse course and accelerate the pace of interest rate hikes if necessary.
“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,” Jerome Powell said during an appearance before the US Senate’s Committee on Banking, Housing and Urban Affairs.
The Federal Open Market Committee, the Fed’s monetary policy-making body, began its monetary tightening stance in March 2022 with a lukewarm quarter-point hike in the federal-funds rate.
It then turned much more aggressive, raising that rate that banks charge each other to borrow or lend excess reserves overnight by a half point in May and then by three quarters of a percentage point in June, July, September and November.
But it has eased off somewhat recently, voting for hikes of 50 basis points in December and then of 25 basis points at its most recent two-day meeting in February.
The federal-funds rate currently stands at a target range of between 4.5 percent and 4.75 percent, its highest level since September 2007.
Besides the possibility of a steeper rate hike at the FOMC’s next meeting on March 21-22, Powell also noted that new projections for the peak level of the federal-funds rate will be released at that time.
In December, most Fed officials said they expected that benchmark rate would peak at a range of between 5 percent and 5.5 percent in 2023, but the central bank chief on Tuesday strongly indicated a higher ceiling.
“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,” he added.
Restoring price stability “will likely require that we maintain a restrictive stance of monetary policy for some time,” the Powell said.
Since soaring to 9.1 percent in June of last year, the US headline inflation rate has fallen for seven consecutive months and stood at 6.4 percent in January.
But the pace of the drop in consumer prices has recently been too slow for the Fed’s liking, with the January inflation rate only slightly lower than that for the 12 months ending in December.
In that regard, Powell said the process of getting inflation back down to the Fed’s 2 percent target “has a long way to go and is likely to be bumpy.”
“Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done,” he said.
During the Capitol Hill hearings, Bob Menendez, a Democratic senator from New Jersey, pressed Powell on the potential effects on the job market of continued rate hikes.
The Fed chief acknowledged that there are future risks associated with the current monetary tightening but noted that for now the unemployment rate is at a 54-year low of 3.4 percent.
Powell also said there is currently a great deal of uncertainty that stems in part from the war in Ukraine and pandemic-triggered supply chain issues problems.
“We have many unusual factors and I don’t think anybody knows how this will play out,” he said.
Powell also said Tuesday as part of his semiannual report to Congress on the economy and monetary policy that it is imperative that lawmakers raise the national debt ceiling.
“If we fail to do so, I think that the consequences are hard to estimate, but they could be extraordinarily adverse and could do long-standing harm,” the Fed chair said.