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“U.S. economic growth slowed significantly last year, and
recent indicators suggest that economic activity has continued to expand at a
modest pace,” Federal Reserve Chairman Jerome Powell said at a banking forum in Spain on Thursday. Photo by Ken Cedeno/UPI | License Photo
June 29 (UPI) — Higher lending rates have resulted in an economic slowdown and a decrease in business investments, although attempts to reduce consumer-level inflation have not yet shown significant results, according to Federal Reserve Chairman Jerome Powell.
“Last year, U.S. economic growth decelerated significantly, and recent indicators indicate that economic activity has continued to expand at a modest rate,” Powell stated at a banking forum in Spain.
While the latest estimate of first-quarter gross domestic product expansion has been revised upward, it remains 0.6 percentage points below the 2.6% growth rate seen in the fourth quarter of 2022.
However, data shows that consumers still have a considerable amount of disposable income, with an increase to $587.9 billion. This increase in cash encourages consumer spending, which consequently supports inflation.
Consumer-level inflation is currently about half of what it was last year, but it is still roughly twice as high as the Fed’s target rate of 2%.
“Inflation has somewhat moderated since the middle of last year,” Powell acknowledged. “Nevertheless, inflationary pressures remain high, and it will take considerable time to bring inflation back down to 2%.”
Earlier this year, the Fed chose to keep its lending rates stable, although Powell has since suggested that there may be two more rate hikes later in the year. Despite raising the policy rate by 5 percentage points, it may not be enough.
“We are observing the impact of our tighter monetary policy on demand, particularly in the interest rate-sensitive sectors such as housing and investment,” he explained. “However, it will take time for the full effects of monetary restraint to be realized, especially in terms of inflation.”
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