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Powell tells Congress rates will likely be 'higher than previously anticipated'
In testimony before lawmakers on Tuesday, Federal Reserve Chair Jerome Powell told Congress interest rates would likely continue rising amid a 'bumpy' process to bring down inflation.
Federal Reserve Chair Jerome Powell told lawmakers on Tuesday interest rates are likely to rise more than previously expected as the central bank works to bring down inflation, which remains stubbornly above the central bank's 2% target.
"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," Powell told the Senate Banking Committee in prepared remarks. "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."
"Although inflation has been moderating in recent months, the process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy," Powell added.
The latest Consumer Price Index report released last month showed prices rose 6.4% over the prior year in January, a slowdown from last summer's peak inflation rate of 9.1% but still well above the Fed's 2% target.
The Fed projected at its December policy meeting interest rates would need to rise to a range of 5%-5.25% this year, though Powell's comments now suggest rates will need to eventually rise above this level. Following the Fed's February policy decision, the central bank's benchmark interest rate stands in a range of 4.5%-4.75%.
The Fed chair said Tuesday policymakers will continue to make decisions on a meeting by meeting basis, and while Powell acknowledged the FOMC has slowed its pace of rate hikes he did not mention whether or not rate hikes would continue at that pace.
Powell noted that economic data from January on inflation, job growth, consumer spending, and manufacturing production have partly reversed course from the slowdown seen back in December.
Powell attributed some of the softening to unseasonably warm weather in January, but cautioned that the "breadth of the reversal" suggests inflation is running higher than expected. He reiterated the Fed still needs to see a drop in services inflation excluding housing to bring inflation down, which is likely to require a weaker job market.
In questioning on Tuesday, Senate Republicans are expected to focus in part on the Fed's reassessment of bank capital requirements following a letter sent by Republican Ranking Member Tim Scott (R-SC) to Chair Powell last week.
Senate Banking Chair Sherrod Brown (D-OH) will caution in his opening statement against raising interest rates too high, saying there are other ways to bring down prices than raising interest rates. Brown points to strengthening supply chains, boosting manufacturing in the U.S., and rebuilding infrastructure.
While "there are times when the Fed must act … We cannot risk undermining one of the successes of our current economy," said Brown. "For the first time in decades, workers are finally – finally – starting to get a little power. Unemployment is at an historic low — 3.4 percent. That’s not just a number. That means Americans have more opportunity and options, even in places that haven’t seen a lot of that in recent years."
In a hat tip to lawmakers’ concerns, Powell said in prepared remarks the Fed is "acutely aware" high inflation is causing "significant hardship" for Americans.
Echoing his hawkish speech from Jackson Hole back in August, Powell said: "The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done."
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