Federal Reserve could hike rates HIGHER and faster than expected to fight inflation, and Biden’s fiscal policy is NOT to blame for price spike, Chairman Jerome Powell tells senators
- Powell told the Banking Committee “final interest rate levels will likely be higher than previously expected”
- The Fed’s interest rate target range is currently 4.5 to 4.75 percent
The Federal Reserve could continue raising interest rates if inflation doesn’t fall faster and the economy doesn’t cool, Chairman Jerome Powell told Banking Committee senators on Tuesday.
He also warned that rate hikes could become more frequent and claimed Congressional spending had little to do with price hikes.
In response to a question from Sen. John Kennedy, R-La., about what Congress could do to fight inflation, Powell said, ‘I don’t think fiscal policy is a big factor driving inflation right now.’
It’s a notable remark given that the Fed chair usually tries to stay away from commentary on fiscal policy.
But Kennedy brushed aside Powell’s remark in comments to after the hearing.
“He just doesn’t get involved in the political discussions about the debt limit,” said the Republican from Louisiana.
“Powell knows it as well as I do… the US has never been able – since 1950 – to achieve disinflation without attacking it on both the fiscal and monetary sides,” Kennedy continued. “But I can understand why he would want to tiptoe around this.”
Powell told the committee that “final interest rate levels are likely to be higher than previously expected” and “if the body of data indicated that faster tightening was warranted, we would be prepared to increase the pace of rate hikes.”
The Fed’s interest rate target range is currently 4.5 to 4.75 percent. According to the Consumer Price Index, January prices rose 6.4 percent year-on-year and 0.5 percent month-on-month. That was slightly lower than December’s numbers, but still well above the Fed’s target.
The Federal Reserve could continue raising interest rates if inflation doesn’t fall faster and the economy doesn’t cool, Chairman Jerome Powell told Banking Committee senators on Tuesday
The central bank raised interest rates by a quarter-point in early February, after enforcing a half-point hike in December and four three-quarter-point hikes before that.
In the past year, the central bank has raised interest rates eight times, which affect much consumer and business credit.
Economists had expected the Fed to hike rates by 0.25 percent, 25 basis points, at its next meeting on March 21-22. Powell’s comments now suggest the hike could be as much as 50 basis points.
Banking Committee Chairman Sen. Sherrod Brown criticized the Fed’s continued rate hikes. “This is a complex problem, and so is interest rates, a single, blunt one,” said Brown, D-Ohio.
Powell also warned that rate hikes could become more frequent
“Certainly raising interest rates won’t stop big companies from taking advantage of all these crises to inflate prices well beyond the increase in their costs,” he added, ticking off other factors that contribute to inflation, such as the Russian war against Ukraine.
Senator Tim Scott, the top Republican on the committee, countered that if Congress had kept federal spending under control, the Fed would not need to initiate these hikes.
“We will continue to make our decisions meeting after meeting,” Powell said. “Although inflation has moderated in recent months, the process of bringing inflation back to 2% still has a long way to go and will likely be bumpy.”