WASHINGTON–Federal Reserve Chairman Jerome Powell said the Fed is prepared to continue to raise rates higher than many had been forecasting if the economy remains hot and inflation is not tamed.
In remarks to the Senate Banking Committee, Powell acknowledged the fight against inflation would “very likely” mean some job losses. Recent robust jobs reports have surprised many economists as companies continue to hire when the pace of hiring had been expected to slow.
As CUToday.info has reported and as credit unions are well aware, the Fed has now pushed interest rates to more than 4.5% after rates had remained close to zero for many years.
“The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Powell told the Senate. “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.”
Rates Could Increase Faster
Powell suggested the Fed is open to the idea of increasing rates at a faster pace, especially if new data show the rate increases to date have not achieved their objective.
“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,” Powell said. “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” meeting.
Powell did testify the Fed does see some good news in the numbers. The rate of inflation on goods has slowed, while rent inflation, which remains high, appears to be cooling.
Some Positive Developments
He reiterated that there are some hopeful developments: Goods inflation has slowed, and rent inflation, while high, appears poised to cool down this year.
Looking forward, Powell stressed “there is little sign of disinflation thus far” in services outside of housing, which includes purchases ranging from restaurant meals to travel and more.
In response to one senator’s question, Powell said, “Nothing about the data suggests to me that we’ve tightened too much. Indeed, it suggests that we still have work to do.”
That includes wage growth, according to Powell, who noted that while increases in worker pay have moderated, it remains too strong to be consistent with a return to 2% inflation.
“Strong wage growth is good for workers, but only if it is not eroded by inflation,” Powell said.
‘Throwing People Out of Work’
Some senators did voice dissatisfaction with the Fed.
Senator Elizabeth Warren (D-MA) told the Fed is trying to “throw people out of work” and that millions of people stand to lose their jobs if unemployment rises as much as the Fed is projecting.
In response, Powell said, “I would explain to people, more broadly, that inflation is extremely high, and that it is hurting the working people of this nation badly. We are taking the only measures that we have to bring inflation down.”
NAFCU's Reaction
NAFCU Chief Economist and Vice President of Research Curt Long noted the markets responded quickly to Powell’s remarks.
"Where a 50-basis point hike in March was seen as an outside possibility prior to the hearing, it immediately became the odds-on outcome with the release of the hawkish remarks. Another strong jobs report on Friday would clinch a half percentage point move later this month,” Long said.
Powell is scheduled to testify before a House hearing today.