Federal Reserve Chairman Jerome Powell reiterated his message of higher and potentially faster interest rate hikes on Wednesday, but stressed that the debate is still ongoing, with a decision based on data to be released before the U.S. central bank policy meeting in two weeks.
“If – and I emphasize that no decision has been made on this – but if the full data were to indicate that a faster tightening is warranted, we would be prepared to accelerate the pace of price hikes. rate,” Powell told the U.S. House of Representatives. Representatives Financial Services Committee in testimony that added a caveat to the otherwise identical message he delivered to a Senate committee on Tuesday.
He again underscored that point in response to an explicit question about the expected outcome of the March 21-22 meeting from Rep. Patrick McHenry, the committee’s Republican chairman.
“We haven’t made any decisions,” Powell said, noting that the Fed will be looking closely at jobs data coming out on Friday and inflation data next week to decide whether rate hikes should go down. top speed.
As happened in Tuesday’s session, lawmakers pressed Powell about the impact of Fed policy on the economy and whether officials were risking a recession in a bid to temper concerns. price increases.
Powell once again acknowledged that the Fed was wrong to initially think that inflation was only the result of “transitory” factors that would subside on their own, and said he was also surprised. of how the labor market has behaved during the recovery from the COVID-19 pandemic.
There were “a bunch of firsts,” Powell said. “If we ever get that pitch again, we’ll know how to play it,” he noted.
When asked if he would pause interest rate hikes to avoid a recession, Powell replied, “I’m not ‘yes or no’ on ‘will I pause interest rate hikes? interest ? This is a serious question. I can’t tell you because I don’t know all the facts.
The Fed’s relentless fight against inflation over the past year has reshaped financial markets, made home loans and other credit more expensive, and aimed to cool the economy as a whole.
At the start of the year it seemed to be working, with Powell at a February 1 press conference declaring that a “disinflationary process” had begun.
Inflation data since then has been worse than expected, and revisions to previous months have shown the Fed has made less progress than expected in bringing inflation back to its 2% target from current levels which are more than double.
As Powell delivered his opening remarks, the new job openings data showed little progress on a measure the Fed has focused on, with employers still holding 1.9 open jobs for every jobless worker, well above pre-pandemic standards.
Other aspects of the data, however, have evolved gradually in ways consistent with a weaker labor market. Overall, openings fell slightly, the worker quit rate continued to gradually decline, and the layoff rate increased.
Prices “higher than expected”
Powell’s message in his semiannual testimony to Congress this week reset expectations for the direction the Fed is heading, with his straightforward assessment that “the ultimate level of interest rates is likely to be higher than expected.” because inflation is not falling as fast as it seemed a few weeks ago.
Rate futures markets now expect policymakers to approve a half-percentage-point rate hike at the next meeting.
Officials will also update projections on how high rates will ultimately need to be raised to stifle inflation. In their latest round of projections, in mid-December, the median estimate of the Fed’s benchmark overnight interest rate high was between 5% and 5.25%, versus the current range of 4.5% to 4.75%.
Where it will end up remains to be seen, with Powell even offering a rationale for the benefits of slower rate hikes.
After a year of rapid rate increases, the economy could still adjust, Powell said, an argument for allowing more data to accumulate.
“We know that slowing the pace of rate hikes this year is one way for us to see more of those effects,” Powell said.
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