Fed chairman says he expects slower rate hikes to continue

Federal Reserve Chairman Jerome H. Powell said Thursday he would expect rate hikes to continue at a slower pace after central bankers skipped rate hikes in June for the first time in 11 policy meetings — but he didn’t. rule out that officials could return to back-to-back rate movements.

“We may not move for a meeting and then move during a meeting,” said Mr. Powell.

Speaking at a conference in Madrid, he reiterated a claim he had made the day before that he would not “take off the table” future rate hikes at successive meetings. But he added that he would expect a more patient approach to persist.

“We’ve had one meeting where we didn’t move, so that’s a moderation of pace in a sense,” he explained. “So I would expect something like this to continue, assuming the economy develops as expected.”

However, Mr Powell noted that the economy “tends to do something different” than policymakers expect.

Fed officials quickly raised interest rates in 2022, amounting to a three-quarter point streak increases. They slowed to half a point late last year, and are gradually moving toward smaller, and now more intermittent, adjustments.

Raising interest rates is like slowing down economic growth: it slows consumer and business demand to reduce inflation. More gradual lifting is similar to tapping the brake pedal less firmly. Fed officials are still slowing the economy, but they are trying to avoid an unnecessarily shocking shutdown.

For now, the Fed’s central bankers expect to raise their policy rate twice more in 2023, from just over 5 percent to just over 5.5 percent. If those moves happen at the pace of every other meeting, that could mean rate hikes at the central bank’s meetings in July and November.

But significant uncertainty clouds that prediction. Investors are estimating a low – though rising – probability of two more rate hikes by the end of the year. They are betting that the Fed is more likely to make just one more rate hike in 2023 as the economy slows and inflation cools.

Mr. Powell noted that the Fed has repeatedly been wrong in overestimating how quickly price increases moderate.

“We have all seen inflation – time and time again – turn out to be more stubborn and stronger than we expected,” he said.

“It would have been unthinkable to have a 5 percent interest rate before the pandemic,” he later added. “And now the question is – is that tight enough policy?”