- Federal Reserve Chairman Jerome Powell predicts more interest rate hikes ahead to combat inflation.
- Despite inflation cooling down, it's still "well above" the Fed's 2% target, warranting further action.
- Powell acknowledges the impact of policy changes on the economy, highlighting that the full effects of monetary restraint on inflation are yet to be realized.
Federal Reserve Chairman Jerome Powell assured the public on Wednesday that they can anticipate more hikes in the interest rates to combat the persistent inflation. This revelation came a week following the Federal Open Market Committee's (FOMC) decision, a first in over a year, to refrain from increasing rates. However, Powell expressed that this pause was more of a brief hiatus than a sign of the Fed discontinuing its rate hikes.
Powell, in his prepared speech for his biannual Capitol Hill testimony, emphasized the shared sentiment of FOMC members. The majority are looking towards additional interest rate elevations by the end of the year. Following the two-day FOMC conference last week, it was indicated that a total increase of 0.5% in the rates could be anticipated by 2023-end. This suggests two more hikes, with each moving by a quarter-point, with the Fed's benchmark borrowing rate currently placed between 5% and 5.25%.
Even though inflation has shown signs of relaxation, it remains significantly higher than the Fed's 2% target, as per Powell. Despite a moderation since the middle of the previous year, inflation pressures continue to surge, indicating that the journey back to the 2% mark is a long road ahead.
Core inflation, which excludes food and energy prices, is a preferred measure for Fed officials. It demonstrates inflation progressing at an annual rate of 4.7% through April. Powell mentioned that while the labor market remains tight, signs of its relaxation have begun to surface. Nevertheless, he emphasized that the number of job vacancies still outweighs the available labor force.
In his remarks, Powell acknowledged the ripple effect of monetary policy adjustments on the economy and indicated that there's still time to see their full impact, particularly on inflation. However, he confidently stated that inflation expectations are stable. His statement briefly touched upon the banking sector's earlier turmoil, reminding that the Fed must ensure its supervisory and regulatory practices are robust.
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