Chair Jerome Powell said the Federal Reserve is likely to raise interest rates higher than previously thought and is prepared to speed up the pace of hikes if needed following a recent string of hot jobs and inflation data.

“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 said Tuesday in prepared testimony before the Senate Banking Committee. “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.”

Bond yields jumped, stocks fell and the dollar extended gains following the release of Powell’s remarks. Traders bet the Fed is likely to raise rates by a half point at the next meeting later this month, instead of continuing the quarter-point pace from the prior gathering.

Fed officials are trying to cool inflation without triggering a recession that drives up unemployment.

“Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Powell said in his remarks released in Washington. Inflation remains well above the Fed’s longer-run objective, he added.

Senate Democrats are wary of the rapid rise in interest rates, and some are likely to step up pressure on the Fed chief to back off, while Republicans blame President Joe Biden for over-stimulating the economy and have urged Powell to keep up the inflation fight.

The Fed began an aggressive campaign to raise its benchmark lending rate a year ago, moving to a range now of 4.5% to 4.75%. Even so, the U.S. economy has shown remarkable resilience. Payrolls increased by more than 1 million jobs in the three months ending in January, the Labor Department said, and recent consumption and inflation data point to persistent price pressures.

Two Hearings
Powell headed to Capitol Hill Tuesday for the first of two days of semiannual monetary policy testimony, his first appearance before Congress since June. He is set to testify before the House Financial Services Committee on Wednesday.

The Fed leader is facing lawmakers who are already counting down to the 2024 presidential election, the outcome of which could hinge on Powell’s ability to steer inflation back toward the Fed’s 2% target without causing a significant downturn.

US central bankers say they need to keep pushing interest rates higher to slow price increases. In December, officials estimated rates would peak at 5.1% this year, according to their median forecast, but several have said that a series of strong economic reports could mean rates need to move even higher.

Inflation Pressures
While inflation has eased since the last time Powell testified before Congress, it is still well above the Fed’s 2% goal. The personal consumption expenditures index, the Fed’s preferred price gauge, rose 5.4% for the 12 months through January.

“The breadth of the reversal along with revisions to the previous quarter suggests that inflationary pressures are running higher than expected at the time of our previous Federal Open Market Committee meeting,” Powell said.

The labor market, which Powell for months has said is extremely tight and out of balance, has yet to buckle under higher borrowing costs. The unemployment rate dipped to 3.4% in January, the lowest in more than five decades, while Black unemployment fell to 5.4%, just above a record low.

“Despite the slowdown in growth, the labor market remains extremely tight,” Powell said.

This article was provided by Bloomberg News.