Fed’s Powell: Strong Hiring Could Force Further Rate Hikes  

 

• Federal Reserve Chair Jerome Powell said Tuesday that if the U.S. job market further strengthens in the coming months or inflation readings accelerate, the Fed might have to raise its benchmark interest rate higher than it now projects.
• Powell’s remarks followed the government’s blockbuster report last week that employers added 517,000 jobs in January, nearly double December’s gain. The unemployment rate fell to its lowest level in 53 years, 3.4%.
• Though price pressures are easing and Powell said he envisions a “significant” decline in inflation this year, he cautioned that so far the central bank is seeing only “the very early stages of disinflation. It has a long way to go.”
• Even as the Fed has raised rates dramatically — by 4.5 percentage points, to a range of 4.5% to 4.75%, the fastest increase in four decades — the job market has remained surprisingly resilient. In addition, inflation, though still high, slowed to a year-over-year rate of 6.5% in December from 9.1% in June.
• The slowdown in inflation, even while the economy has stayed healthy, has raised hopes in financial markets that the Fed might be able to achieve its goal without having to raise borrowing rates so high as to cause a steep recession.
• But Powell brushed aside that notion Tuesday. “There’s been an expectation that it’ll go away quickly and painlessly,” Powell said. “I don’t think that’s at all guaranteed.” Instead, he warned that in his estimation, “it will take some time, and we’ll have to do more rate increases and then we’ll have to look around and see if we’ve done enough.”

(Source: AP News)