Federal Reserve Chair Jerome Powell said the central bank will keep raising interest rates to tame inflation following the steepest hike in almost three decades, though policy makers must be “nimble” as various shocks buffet the world’s largest economy.
“We anticipate that ongoing rate increases will be appropriate,” Powell said Wednesday in his semiannual testimony to the Senate Banking Committee. “Inflation has obviously surprised to the upside over the past year, and further surprises could be in store. We therefore will need to be nimble in responding to incoming data and the evolving outlook.”
Powell’s remarks largely reiterated comments at a press conference last week after he and his colleagues on the Federal Open Market Committee raised their benchmark lending rate 75 basis points -- the biggest increase since 1994 -- to a range of 1.5% to 1.75%.
While Powell told reporters last week that another 75 basis-point increase, or a 50 basis-point move, was on the table for the next meeting in late July, Wednesday’s text made no reference to the size of future rate hikes. Fed Governor Christopher Waller said Saturday that he would support a 75-basis-point rate increase in July should economic data come in as he expects.
“We understand the hardship high inflation is causing,” Powell said Wednesday. “We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so.”
Investors expect the US central bank to keep raising rates to a peak around 3.6% by the middle of next year, according to interest-rate futures.
“Financial conditions have tightened and priced in a string of rate increases and that’s appropriate,” Powell said in response to a question following his opening remarks. “We need to go ahead and have them.”
Hotter Than Expected | US headline and core inflation both rose more than forecast in May
The Labor Department’s consumer price index rose 8.6% last month from a year earlier, a four-decade high. The rising cost of living has angered Americans and hurt the standing of President Joe Biden’s Democrats with voters ahead of November congressional midterm elections.
Fed officials have admitted that they were too slow to tighten and are now trying to front-load rate increases in the most aggressive policy pivot in decades.
While a recession isn’t in the Fed’s forecast, economists are increasingly flagging the likelihood of a downturn sometime in the next two years.