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Investing.com – Federal Reserve Chairman Jerome Powell, according to new comments released Thursday, expects to raise twice. Powell attributes the expected increase to two main reasons: the very strong labor market, and the inflation rate, which is very far from the Fed’s target of 2%.
In remarks Powell made to Banco de España on financial stability, Powell reiterated his recent comments about the strength of the economy. Despite repeated assurances, the Federal Reserve Chairman does not mention when the bank will make its decision to raise interest rates, and only refers to relying on macroeconomic data that is updated on a monthly basis.
Regarding the banking pressures that caused the collapse of a number of US banks during the month of March, Powell said that these pressures may raise interest rates, as they reduce credit activity and make its terms more violent. However, Powell continues to point to the strength of the rising job market in the service sectors because of it.
Powell notes “a long way to go” before inflation returns to its 2% target.
In its latest meeting, the Fed kept the interest rate stable at a range of 5% to 5.25%, after raising interest 10 times in a row since March 2022.
“We made this decision in light of the distance we’ve come in tightening, uncertain monetary policy delays (the fallout from monetary policy is lagging behind a bit), and potential headwinds from tightening,” Powell said. According to Reuters
At the same time, he said, “a strong majority of panel participants expect it would be appropriate to raise interest rates two or more times by the end of the year.” According to Reuters
The Fed will hold four more policy meetings this year, with the next one on July 25-26, raising rates by 25 basis points.
The rate hikes so far have slowed business investment and the housing sector, Powell said, with activity well below its peak last year even as some indicators have emerged recently.
“It will take time” for the rest of the economy to feel the full impact of the interest rate hikes so far, he said.
This is especially true of inflation, which, by the Fed’s preferred metric — is estimated to have risen 3.9% last month from a year earlier, and, excluding food and energy prices, is estimated to have increased by 4.7. %, according to Powell.
The official numbers for May will be published on Friday. If these estimates hold, it would show a lack of progress on underlying price pressures over the past six months and would mean that the Fed still has a way to raise rates in light of a strong economy and inflation that is not responding to the degree required to tighten monetary policy.
2023-06-29 13:19:00
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