Powell warns that Fed interest rates could rise more than expected

The main guide rate of the Federal Reserve The US, which has been rising for a year to try to contain inflation, could continue to rise beyond 5.1%, the ceiling expected so far, the president of the central bank warned on Tuesday, Jerome Powell.

“The latest economic data is stronger than expected, suggesting that the final level of interest rates could be higher than expected”Powell told a Senate committee.

The Fed will update its economic forecasts on March 21 and 22, during its next monetary policy meeting.

After several strong rate hikes, the Fed began to moderate the increases that also continued, seeking to cool the economy by lowering consumption and investment by making credit more expensive.

In their last meeting, on February 1, they adopted a quarter-point increase, a figure considered standard by the market.

But according to Powell the trend could change again. “If all the data indicates that a faster adjustment is justified, we would be willing to increase the pace of rate hikes”Powell told lawmakers.

Rates stand at 4.5-4.7% versus 0-0.25% during the pandemic, when the Fed was looking to boost flagging demand.

“Although inflation has moderated in recent months, the process of reducing it to 2% will be long”added the head of the central bank.

The strength of the job market, consumer spending, industrial production and inflation data for January reported a partial reversal of trend, probably due to exceptionally benevolent weather in January, Powell risked.

economic strength

In reaction to Powell’s comments, the New York stock market, which opened on hold before this intervention that Powell will repeat tomorrow before House legislators, fell into negative territory.

According to the PCE index, the one preferred by the Fed, inflation rose to 5.4% in 12 months in January, slightly above the figure for December (5.3%).

Meanwhile, the consumer price index (CPI) showed a slight relaxation, to 6.4% at 12 months in January compared to 6.5% in the rolling year ended in December. However, in the month-to-month comparison, the United States registered a price increase for the first time since September, of 0.5% over the last month of 2022.

The unemployment rate also shows the strength of the world’s largest economy, standing at 3.4%, a minimum in more than 50 years.

One of the Fed’s governors, Christopher Waller, indicated on Thursday that he would support raising rates to above 5.4% in the coming months if inflation does not moderate more quickly and the job market remains jubilant.

“To restore price stability, we have to see lower inflation in this sector (ndlr: because of wages)”, summed up Powell this Tuesday.

Rising wages drive demand and with it, price rises.

“We will maintain the route until the job is done,” said Powell once more.

Source: AFP