Powell Anticipates Further Fed Rate Hikes in Ongoing Inflation Battle

Federal Reserve Chairman Jerome Powell confirmed on Wednesday that there will likely be more interest rate increases until significant progress is made in reducing inflation.

In his remarks to the House Financial Services Committee, Powell stated that the recent decision to not raise rates was only a temporary pause and not an indication that the Fed is finished with hiking rates.

“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell said in his prepared remarks.

Following last week’s FOMC meeting, officials expect two additional rate hikes totaling 0.5 percentage point by the end of 2023. The Fed’s benchmark borrowing rate is currently between 5% and 5.25%.

Although inflation has moderated since last year, it remains above the Fed’s target of 2%. Powell stated that more work needs to be done to bring inflation back down.

The Fed prefers to look at “core” inflation, which excludes food and energy prices. The core consumer price index for May was at 5.3%.

While the impact of policy tightening on the economy is being observed, Powell noted that the labor market is still tight.

Powell mentioned that the Fed has adjusted its approach to policy and is considering raising rates at a more moderate pace.

Inflation expectations are currently well-anchored, according to Powell. However, lowering inflation will require slowing down the economy.

Rate decisions will be made based on incoming data and meeting by meeting.

Powell also briefly discussed the banking turmoil earlier this year, emphasizing the importance of appropriate supervisory and regulatory practices.