That seems like a reasonable forecast, said Kathy Bostjancic, chief U.S. economist at Oxford Economics, though headline inflation is likely to rise further with increasing commodity prices resulting from the Ukraine war. “Clearly the risks are to the upside here,” she said.
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Powell, whose confirmation for a second term has been stalled by Republican opposition to President Joe Biden’s selection of Sarah Bloom Raskin to be vice chair for supervision, faces the challenge of pivoting policy to confront the highest inflation in 40 years, while not tightening so much that the economy stalls.
Critics, including some Republican lawmakers, say the U.S. central bank has been too slow to act.
The Fed’s preferred gauge of price movements rose at a 6.1% annual pace in January, triple the central bank’s 2% target. Demand remains strong with growth forecasts centering around 2.9% this year, according to estimates tallied by Bloomberg, while companies continue to add employees at a robust pace. Meanwhile, some of Powell’s colleagues see an urgent need to raise rates, with Governor Christopher Waller calling for 100 basis points of tightening by midyear.
Dot Plot
Fed officials will release fresh quarterly estimates for interest rates and the economy at their upcoming meeting, offering some guidance for how far and fast they expect to tighten policy in the coming months. Some have signaled the Fed may have to act with more force to get price pressures under control.
“This situation calls for rapid withdrawal of policy accommodation in order to preserve the best chance for a long and durable expansion,” St. Louis Fed President James Bullard said in separate remarks Wednesday. “The FOMC may have to move more aggressively going forward if inflation increases or does not moderate as much as expected.”
The Fed chair follows his remarks today with an appearance before the Senate Banking Committee Thursday, where Powell is waiting for a confirmation vote together with Biden’s four other nominees for the central bank.
(Updates with comment from Fed’s Bullard in penultimate paragraph.)
—With assistance from Liz Capo McCormick.
This article was provided by Bloomberg News.