US Fed still up in the air on speeding up rate hikes: Powell

Federal Reserve Chairman Jerome Powell on Wednesday reiterated his message of a higher and potentially faster interest rate hike, but stressed that the debate is still ongoing, with a decision dependent on data released before the U.S. central bank policy meeting in two weeks.

“If – and I emphasize that no decision has yet been made on this matter – but if the totality of data indicates that faster tightening is warranted, we will be ready to increase the pace of rate hikes,” Powell told the US House of Representatives. Representatives of the Financial Services Committee, in their testimony, added a cautionary clause to an identical message he gave to the Senate committee on Tuesday.

He reiterated this point in response to a question about the expected outcome of the March 21-22 meeting from Representative Patrick McHenry, the Republican chairman of the committee.

“We haven’t made any decision yet,” Powell said, noting that the Fed will be closely monitoring Friday’s upcoming jobs data and next week’s inflation data to decide whether to raise rates back at a higher rate.

As in Tuesday’s meeting, lawmakers pressed Powell on the impact of Fed policy on the economy and whether officials are risking a recession in a bid to contain rising prices.

Powell once again acknowledged that the Fed was wrong in initially thinking that inflation was only the result of “temporary” factors that would ease on their own, and said he was also surprised at how the labor market is behaving during the post-COVID-19 recovery. 19 pandemic.

According to Powell, there were “many innovations”. “If we ever get this pitch again, we will know how to use it,” he said.

Asked if he would pause interest rate hikes to avoid a recession, Powell replied: “I don’t answer yes or no to the question ‘Will I pause interest rate hikes?’ This is a serious question. I can’t tell you because I don’t know all the facts.”

The Fed’s intense fight against inflation over the past year has reshaped financial markets, made mortgages and other loans more costly, and has been designed to cool the economy as a whole.

At the beginning of the year, it seemed to be working: Powell, at a press conference on February 1, said that a “disinflationary process” had begun.

Inflation data has since been worse than expected, and revisions to previous months have shown the Fed has made less progress than anticipated in bringing inflation back to its 2 percent target from current levels, which are more than twice as high.

As Powell delivered his opening remarks, new job openings data showed little progress on one metric the Fed has focused on: Employers are still holding 1.9 jobs for every unemployed, well above pre-pandemic rates.

However, other aspects of the data changed gradually, in line with a softer labor market. The total number of vacancies decreased slightly, the number of employees leaving the company continued to gradually decrease, and the number of layoffs increased.

Rates ‘higher than previously expected’

Powell’s message in his semi-annual testimony to Congress this week changed expectations about where the Fed is heading, with his scathing assessment that “the final level of interest rates is likely to be higher than previously expected” because inflation is not falling as fast as it seemed. just a few weeks ago.

The interest rate futures markets are now expecting politicians to approve a half-percentage rate hike at their upcoming meeting.

Officials will also update their projections on how high rates will ultimately need to be raised to tamp down inflation. In their latest set of forecasts, made in mid-December, the median estimate of the Fed’s overnight base interest rate high was 5 to 5.25 percent, compared to the current range of 4.5 to 4.75 percent.

How this will end remains to be seen, and Powell has even offered some rationale for the benefits of a slower rate hike.

After a year of rapid rate hikes, the economy can still adjust, Powell said, which is an argument for accumulating more data.

“We know that slowing down the pace of rate hikes this year is a way to see more of these effects,” Powell said.