Powell Signals Increased Rate Hikes If The Economy Stays Strong  

 

• The Federal Reserve could increase the size of its interest rate hikes and raise borrowing costs to higher levels than previously projected if evidence continues to point to a robust economy and persistently high inflation, Chair Jerome Powell told a Senate panel Tuesday. Such economic figures, Powell said, “have partly reversed the softening trends that we had seen in the data just a month ago.”
• The Fed chair also said that inflation “has been moderating in recent months” but added that “the process of getting inflation back down to 2 per cent has a long way to go and is likely to be bumpy.” Inflation, as measured year over year, has slowed from its peak in June of 9.1% to 6.4%.
• Powell’s comments raise the possibility that the Fed will increase its key interest rate by a half-percentage point at its next meeting on March 21-22, after having carried out a quarter-point hike in early February.
• The Fed chair’s warning of potentially more aggressive hikes led some economists to pencil in higher rates for later this year than they had previously estimated. Rising rates can not only cool consumer and business spending, weaken growth, and slow inflation; they can also send the economy sliding into a recession.
• Additionally, the Fed’s monetary policy report to Congress, which it publishes in conjunction with the chair’s testimony, said that quelling inflation will likely require “softer labour market conditions” — a euphemism for fewer job openings and more layoffs.

(Source: AP News)