Jerome Powell, the Chair of the Federal Reserve, has indicated that additional interest rate hikes are on the horizon for this year. Speaking to U.S. lawmakers, Powell stated, “Considering the progress we have made, it may be prudent to raise rates, albeit at a more gradual pace. However, it is important to acknowledge that inflationary pressures remain high, and we still have a considerable distance to go in reining in inflation to the desired 2 percent level.”
Powell’s Remarks on Future Rate Hikes and Inflation
In his prepared speech before the House Financial Services Committee on Wednesday, Federal Reserve Chair Jerome Powell signaled the likelihood of more interest rate increases this year. The speech was part of his appearance on Capitol Hill to present the Federal Reserve’s semiannual Monetary Policy Report. Following ten consecutive rate hikes, the Federal Open Market Committee (FOMC) decided to halt the raising of interest rates during its meeting last week.
“With respect to the tightening of monetary policy, the potential delays in its impact on the economy, and the potential adverse effects of credit tightening, the FOMC decided last week to maintain the target range for the federal funds rate at 5 to 5-1/4 percent and to continue the substantial reduction of our securities holdings,” Powell explained, providing further elaboration:
Nearly all FOMC participants anticipate that it will be appropriate to moderately raise interest rates further by the end of the year.
During the question-and-answer session with committee members, Powell clarified, “Considering the progress we have made, it might be sensible to increase rates, but at a more gradual pace.”
Additionally, Powell acknowledged, “The economy is facing challenges due to tighter credit conditions for households and businesses, which are likely to have an impact on economic activity, employment, and inflation. The extent of these effects remains uncertain.”
Among the 18 Fed policymakers, twelve indicated that they expect a minimum of two rate hikes this year, while four projected a single increase. Only two officials anticipate that the key rate will remain unchanged until the end of the year.
Regarding inflation, Powell emphasized that it continues to surpass the Federal Reserve’s target of 2%. Although he noted that “Inflation has moderated somewhat since the middle of last year,” he underscored:
Inflationary pressures are still significant, and we have a considerable distance to go in reducing inflation to the 2 percent target.
When considering the necessary measures to achieve a 2% inflation rate over time, Powell affirmed that the Fed will continue to make decisions on a meeting-by-meeting basis, taking into account “the cumulative tightening of monetary policy, the delays in which monetary policy affects economic activity and inflation, and economic and financial developments.”
Last week, Powell dismissed the possibility of an imminent rate cut, stating that “it would be appropriate to cut rates when inflation significantly declines, which we are looking at a couple of years down the line.”
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Frequently Asked Questions (FAQs) about rate hikes
What is the stance of Federal Reserve Chair Jerome Powell on future rate hikes and inflation?
Jerome Powell, the Chair of the Federal Reserve, has signaled the likelihood of more interest rate hikes this year. He emphasizes the persistent inflation pressures and the need to approach rate hikes at a more moderate pace.
What factors influenced the decision to pause raising interest rates?
The Federal Open Market Committee (FOMC) decided to pause raising interest rates after ten consecutive rate hikes due to considerations such as the progress made in tightening policy, the uncertain impact of monetary policy on the economy, and potential headwinds from credit tightening.
How many rate hikes are expected by the end of the year according to Fed policymakers?
Among the 18 Fed policymakers, twelve anticipate at least two more rate hikes this year, while four project a single rate hike. Only two officials expect the key rate to remain unchanged until the end of the year.
What is the current state of inflation according to Fed Chair Jerome Powell?
Although inflation has moderated somewhat since the middle of last year, Jerome Powell highlights that inflation pressures remain high and there is still a long way to go in bringing inflation back down to the desired 2 percent target.
Will there be a rate cut in the near future?
Powell rejects the possibility of a rate cut in the near future. He states that a rate cut would be appropriate when inflation significantly declines, which is projected to occur a couple of years down the line.
More about rate hikes
- Federal Reserve
- Federal Open Market Committee (FOMC)
- Jerome Powell – Chair of the Federal Reserve
- Monetary Policy Report
- Inflation and the CPI