Powell: Fed will decide on rate hike ‘meeting by meeting’

WASHINGTON (AP) – Federal Reserve Chairman Jerome Powell on Wednesday underscored the Fed’s determination to raise interest rates sufficiently to slow inflation, a commitment that has fueled concerns that the central government will fight back against rising prices. A bank fight could propel the economy into recession.

Powell said the pace of rate hikes in the future will depend on whether — and how quickly — inflation begins to decline, something the Fed will make on a “meet by meeting” basis.

Its decision will be based on “incoming data and the evolving outlook for the economy,” Powell said in prepared testimony to the Senate Banking Committee, which he is addressing as part of the Fed’s semiannual policy report to Congress.

Powell’s testimony comes a week after the Fed raised its benchmark interest rate by three quarters of a percent, its biggest increase in nearly three decades, to a range of 1.5% to 1.75%. With inflation worsening, the Fed’s policymakers also forecast a more accelerated rate of rate hikes this year and its key rate will reach 3.8% by the end of 2023, compared to what was predicted three months ago. This will be its highest level in 15 years. ,

Concerns are growing that with inflation at a four-decade high, the Fed will tighten debt enough to cause a recession. This week, Goldman Sachs forecast a recession at 30% in the next year and 48% in the next two years.

Thom Tillis of North Carolina, a senior Republican on the banking committee, accused Powell of taking too long to raise rates on Wednesday, saying the Fed’s hike is “long overdue” and that its benchmark short-term rate should be too high. .

“The Fed has largely positioned itself on a menu of purely reactive policy measures,” Tillis said.

At a news conference last week, Powell suggested a rate hike of half or three-quarters of a point would be considered at the Fed’s next meeting in late July. Any of these would exceed the quarter-point Fed hikes that have been typical in the past, and they reflect the central bank’s struggle to contain high inflation as quickly as possible.

Anticipating further and larger rate hikes, investors have sent Treasury yields sharply higher, making the cost of borrowing for home purchases, in particular, more expensive. With the average 30-year term mortgage rate up to about 5.8% — nearly double the rate a year ago — home sales have weakened. Credit card users and autos are also getting hit with higher borrowing costs.

Fed officials expect such changes to help it achieve its goals of sufficiently cooling demand to slow the economy and moderate price increases. In his testimony, Powell said that higher interest rates should “continue to restrain growth and help demand better balance with supply.”

The aggressive rate hike by the Fed has intensified fears that it would overwhelm business and consumer lending. But in projections released last week, Fed officials predict the economy will slow sharply this year and next, but will continue to grow. He also predicted, however, that the unemployment rate would rise by half a percentage point by 2024, an increase that economists say could lead to a recession.

Powell reiterated his view on Wednesday that the US economy is “very strong and well positioned” to face higher rates. Yet as inflation continues to cause trouble for millions of American households, he has insisted that reducing price hikes by raising rates is the Fed’s top priority.

On Wednesday, the Fed chairman said central bank policymakers will “look for evidence of consolidation that inflation is easing” in the coming months before they can ease the pace of rate hikes. In a policy report to Congress late last week, the Fed said its commitment to fighting inflation is “unconditional.”

For now, most analysts expect a second three-quarter-point rate hike at the end of next month and at least a half-point increase when the Fed meets again in September.

Even with rising borrowing costs and slowing economic growth, inflation is expected to remain well above the Fed’s 2% annual target by the end of this year. On Sunday, Federal Reserve Bank of Cleveland President Loretta Meester predicted that it would take “a few years” for inflation to return to 2%.

A combination of sluggish growth, a possible recession and still high inflation would put the Fed in a bind: further rate hikes would further weaken the economy and increase unemployment. Yet postponing further interest rate hikes could push inflation to a painfully high level and damage the economy.

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