Jerome Powell, Chairman of the Federal Reserve, affirmed on Wednesday that further interest rate hikes are probable due to the fact that inflation is "substantially above" its desired level. He stated that "pressures on inflation are still great, and the process of reducing inflation to 2% has a lengthy way to go." In addition, he noted that the labor market is still restricted, although there are indications that conditions are beginning to loosen.
Federal Reserve Chairman Jerome Powell on Wednesday indicated that more interest rate increases are likely until additional progress is made on bringing down inflation. This comes a week after Federal Open Market Committee officials decided to not bring rates higher for the first time in over a year. Powell stated that the decision to not raise rates "likely was just a brief respite rather than an indication that the Fed is done hiking," adding that "nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year." He will be delivering prepared remarks to the House Financial Services Committee today as part of his semiannual appearance to update lawmakers on monetary policy.
At the conclusion of last week's two-day FOMC meeting, officials communicated they anticipate rate increases of 0.5 percentage points by the end of 2023, which would mean two more hikes if executed in quarter-point increments. The central bank's benchmark borrowing rate currently stands between 5%-5.25%.Maintaining that inflation has cooled but "remains well above" the Fed's 2% target, Powell declared further action is needed. He noted, "Inflation has moderated somewhat since the middle of last year. Despite this, inflation pressures still persist, and the journey to two percent is far from completion."Officials tend to focus on "core" inflation, which excludes food and energy costs, and it is currently running at a 4.7% rate year-over-year as of April. The core consumer price index for May was at 5.3%.Taking into consideration that monetary policy measures, such as rate hikes and the Fed's endeavor to reduce its balance sheet bond holdings, usually happen with considerable delays, officials determined to hold off raising rates this month and observe their effect. Powell stated the labor market is still tight, and though some signs of slackening are occurring, there is still a large number of open jobs compared to available labor. He said, "We have been witnessing the repercussions of our policy tightening on demand in the most interest rate-sensitive sectors of the economy, however, it will require time for the full effects of monetary restraint to be realized, particularly in terms of inflation."Powell further noted that inflation expectations remain "well-anchored" and referenced the University of Michigan consumer confidence survey, which pointed to a 3.3% inflation outlook for the following year, the lowest since March 2021. Then, he accentuated that taking inflation down further will require slowing the economy's growth rate below trend and that rate decisions will be determined by data and on a case-by-case basis.Lastly, Powell reminded that the events from earlier in the year exemplify why the Fed must ensure its regulatory and supervisory practices are sufficient.
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