The Federal Open Market Committee “anticipates that ongoing increases in the target range will be appropriate,” it said in a statement after a two-day meeting in Washington. “The committee is strongly committed to returning inflation to its 2% objective.”
The central bankers also revised their outlook for the economy from the soft-landing scenario of March to a bumpier touchdown, underscoring the tough task Powell faces as he tries to tame inflation running about three times the Fed’s 2% target without causing a recession.
Having just won Senate confirmation to a second four-year term, Powell must also re-establish the Fed’s inflation-fighting credibility with investors and with Americans who are furious over the soaring cost of living.
“We’d like to see demand moderating. Demand is very hot still in the economy. We’d like to see the labor market getting better in balance between supply and demand,” he said, adding that officials won’t “declare victory” until they see compelling evidence that inflation is coming down.
He dismissed the suggestion that the Fed was trying to induce a recession, saying he saw “no sign” of a broader slowdown while assuring Americans that higher rates could be borne.
“It does appear that the U.S. economy is in a strong position, and well positioned to deal with higher interest rates,” he said.
The Fed aims for 2% inflation measured by the Commerce Department’s personal consumption expenditures price index, which rose 6.3% in the 12 months through April, near a 40-year high. Policy makers now forecast the gauge to advance 5.2% this year, up from 4.3% in the March projections, based on the median estimate of Fed governors and regional presidents.
They forecast gross domestic product growth to slow to 1.7% this year compared with a 2.8% expansion projection in March. Unemployment could rise to 4.1% at the end of 2024 from 3.6%.
The FOMC vote, which included newly sworn-in governors Lisa Cook and Philip Jefferson, included a dissent from Kansas City Fed President Esther George, who preferred a half-point increase.
Powell will testify before Congress over two days next week, where he can expect to be challenged over his central bank’s performance.
--With assistance from Sophie Caronello, Vince Golle and Catarina Saraiva.
This article was provided by Bloomberg News.