Federal Reserve Chairman Jerome Powell on Wednesday reaffirmed his message of higher and possibly faster rate hikes, but stressed that the debate was still ongoing, with a decision hinged on data released ahead of the U.S. central bank’s two-year policy meeting. weeks will be released.
“If – and I emphasize that no decision has been made on this – but if the totality of the data indicated that faster tightening is warranted, we would be prepared to accelerate the pace of rate hikes,” Powell told the U.S. House of Representatives. Financial Services Committee representatives in testimony that added a cautionary clause to the otherwise identical message he delivered to a Senate Judiciary Committee on Tuesday.
He reemphasized the point in response to an explicit question about the expected outcome of the March 21-22 meeting of Rep. Patrick McHenry, the committee’s Republican chairman.
“We haven’t made a decision yet,” Powell said, noting that the Fed will be watching closely Friday’s upcoming jobs data and next week’s inflation data to decide whether to kick rate hikes back into high gear.
As happened during Tuesday’s session, lawmakers pressured Powell over the impact of the Fed’s policies on the economy and whether officials risked a recession to dampen price increases.
Powell again acknowledged that the Fed was wrong in initially thinking inflation was just the result of “transient” factors that would abate on their own, and said he was also surprised at how the labor market has behaved during the recovery. the COVID-19 crisis. 19 pandemic.
There have been “a number of firsts,” Powell said. “If we ever get this field again, we’ll know how to handle it,” he noted.
Asked if he would interrupt rate hikes to avoid a recession, Powell replied: “I’m not doing a ‘yes or no’ to ‘shall I interrupt rate hikes?’ That’s a serious question, I can’t tell you because I don’t know all the facts.”
The Fed’s intense battle against inflation over the past year has reshaped financial markets, made home mortgages and other credit more expensive, and was designed to cool the economy overall.
It seemed to be working from the start of the year, with Powell speaking at a Feb. 1 press conference saying a “disinflationary process” had begun.
Inflation data has since been worse than expected, and revisions from previous months showed the Fed had made less progress than thought in bringing inflation back to its target of 2 percent from current levels that are more than double.
As Powell made his opening remarks, new data on job openings showed little progress on one measure the Fed has focused on, with employers still holding 1.9 jobs open for every unemployed person, well above pre-pandemic norms.
However, other aspects of the data gradually evolved in a manner befitting a weaker labor market. The number of job openings in general fell slightly, the pace of layoffs continued to decline gradually and the number of redundancies increased.
Rates ‘higher than previously expected’
Powell’s message in his semiannual congressional testimony this week has revised expectations about where the Fed is headed, with his blunt assessment that “final interest rate levels are likely to be higher than previously expected” because inflation is not falling as fast as it seemed a few weeks ago.
Interest rate futures markets now expect policymakers to approve a rate hike of half a percentage point at the upcoming meeting.
Officials will also update projections on how high rates will eventually need to be raised to quell inflation. In their latest set of projections, in mid-December, the average estimate of the peak of the Fed’s overnight interest rate was between 5 percent and 5.25 percent, up from its current range of 4.5 percent to 4.75 percent.
Where that ends up remains to be seen, with Powell even offering a rationale for the benefits of slower rate hikes.
After a year of rapid rate hikes, the economy can still adjust, Powell said, arguing for more data to be collected.
“We know slowing the pace of rate hikes this year is a way for us to see more of those effects,” Powell said.