Fed chairman sees ‘long way to go’ in inflation battle
Federal Reserve Chairman Jerome H. Powell will tell House lawmakers that the United States is still “a long way” from low and stable inflation, even 15 months after the central bank’s campaign to economy to cool and quickly grapple with price increases.
Mr. Powell is on the agenda rather testify the House Financial Services Committee at 10 a.m. He will explain to lawmakers that the labor market remains very tight and that inflation – although it has fallen notably since last summer’s peak – is still too fast. In light of that, the Fed could raise interest rates even higher than the current level of just above 5 percent.
“Inflation has moderated somewhat since the middle of last year,” said Mr. Powell say, according to the text of his prepared remarks. “Nevertheless, inflationary pressures remain high and the process of bringing inflation back to 2 percent still has a long way to go.”
Fed officials left interest rates unchanged last week after 10 consecutive hikes. But central bankers were adamant that the decision to hit pause did not amount to a declaration of victory over inflation. Instead, a more gradual approach will give policymakers time to assess how well higher rates work to slow the economy as they try to strike a delicate balance between doing enough to cool growth without doing too much.
“Given how far and how fast we’ve gone, we thought it prudent to stick to the target range,” said Mr. Powell to tell lawmakers on Wednesday. Still, he will also add that “nearly all” voting Fed officials “expect that it will be appropriate to raise interest rates some more towards the end of the year.”
Central bankers predict in their verse economic projections last week that they will likely raise interest rates to about 5.6 percent this year, which would amount to another two quarter-point hikes. Mr. Powell said at his press conference following the decision last week that the July 25-26 Fed meeting will be “live,” meaning a rate hike is possible at that meeting.
Investors just expect the Fed to pass another rate hike before holding them steady for the rest of the year, based on market prices, though significant uncertainty remains around that forecast – markets are pricing in some chances of higher rates and some chances of a rate cut for the end of 2023.
The Fed will have to assess how much the economy is slowing, and whether that will likely be enough to bring inflation back to their target of 2 percent over time. Overall growth and the housing market have cooled since 2021, but consumption and even house prices have shown signs of strength recently, and hiring has remained brisk.
“We have seen the effects of our tightening policies on demand in the most interest-rate sensitive sectors of the economy,” said Mr. Powell to lawmakers. “However, it will take time for the full effects of monetary restraint to be realized, especially on inflation.”