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Powell Suggests Further Restrictions, Including Potential Rate Increases at Subsequent Meetings

On Wednesday, Federal Reserve Chairman Jerome Powell conveyed a hard-line stance on inflation, expressing during a monetary policy forum in Sintra, Portugal that multiple interest rate increases were likely in the near future, and possibly at a considerable rate. Back in June, fellow policymakers had already indicated a half percentage point of increases by the end of 2023, which could mean two more hikes at a quarter point per meeting. Powell remarked that this might not be the case depending on data-related factors, but refrained from ruling out consecutive hikes. In response to this commentary, the Dow Jones Industrial Average dropped by over 120 points. Powell noted that despite a sequence of ten rate hikes, the effects of the policy haven't had time to work their way through the economy, leading to uncertainty concerning the "sufficiently restrictive" standard to achieve the Fed's targeted inflation rate of 2%. A few economists foresaw a recession occurring as a result of the rate increases. Additionally, Powell alluded to the issues in March that caused the closure of Silicon Valley Bank and two other corporations, and acknowledged the possibility of credit access reducing due to lenders tightening standards and a decrease in loan demand. European Central Bank President Christine Lagarde declared that further interest rate increases are likely in July, whereas Bank of Japan Governor Kazuo Ueda said he would consider a tightening of the ultra-loose policy if inflation didn't subside. Bank of England Governor Andrew Bailey highlighted the significance of reducing prices and affirmed his support of the 2% inflation target. Powell shared in the sentiment, stressing that it could take awhile to see a decrease, but that it would be great when that day comes.

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