Most Federal Reserve members anticipate raising interest rates further this year because US inflation is still too high, Chair Jerome Powell said on Wednesday before a House committee.
On the first two days of semi-annual testimony on Capitol Hill, Powell stated that “inflation pressures continue to run high and the process of getting inflation back down to 2% has a long way to go.”
However, Powell noted that the Fed held interest rates steady last week after ten straight increases, so assessing how rising borrowing costs have impacted the economy might take some time.
Uncertainty regarding the Fed’s next steps has increased due to the mismatch between its expressed concern over still-high inflation and its decision to forgo raising interest rates. According to the messaging’s fuzzier tone, Powell may be attempting to balance competing demands from Fed officials who want to keep raising rates and those who believe the central bank has gone too far.
When asked on Wednesday to elaborate on his remarks from the previous week, Powell told the House Financial Services Committee that maintaining the current level of interest rates was consistent with the Fed’s growing emphasis on slowing the pace of its hikes to avoid raising rates higher than necessary to combat inflation and running the risk of triggering a severe recession in the process.
Powell compared the Fed’s rate hikes to a journey, saying it would make sense to raise rates but do it gradually. “You slow down even more as you approach your destination and search for that destination.”
Republican Rep. Patrick McHenry, the committee’s leader from North Carolina, said the Fed “must remain committed to eliminating this stealth tax on American workers and families,” alluding to inflation. Party disagreements over the Fed’s policies were evident at the session. And I implore you to maintain your resolve.
However, the panel’s senior Democrat, Rep. Maxine Waters of California, asserted that “the Fed made the right decision to pause interest rate hikes.”
In addition, Powell said in his remarks on Wednesday that the Fed decided to maintain its benchmark interest rate last week so it could assess the effects of three significant bank failures this spring on the banking industry and whether those failures would result in less credit being available to consumers and businesses, which would ultimately slow the economy.
Most economists have stated that they anticipate a rate increase at the Fed’s meeting in late July. What steps the central bank might take after that is considerably less obvious.
Last week, the decision-makers said they anticipated raising rates twice more this year. However, if economic data indicates that inflation rapidly returns to its 2% target, it might not follow through.
When speaking at a news conference last week, Powell indicated there were no intentions to follow any specific timeline or hike rates at every other meeting. As he underlined on Wednesday, Fed officials will instead keep an eye on economic indicators and decide how much to raise interest rates “meeting by meeting.”
Various loans, including home and auto loans, credit cards, and corporate borrowing, have become more expensive to borrow for people and businesses due to the central bank’s recent rate rises. The objective has been to reduce inflation by reducing hiring and spending.
The Federal Reserve increased its benchmark rate at a dizzying rate last year four times by three-quarters of a percent. Currently, year-over-year inflation has decreased from 9.1% to 4%.
JOIN US ON WHAT'SAPP, TO GET INSTANT STATUS UPDATES AND BE IN THE KNOW.
CLICK HERE
