ALBAWABA — Interest rates could be raised higher than previously anticipated if strong economic data persists, United States Federal Reserve Chair Jerome Powell cautioned on Tuesday, to slow a growing economy.
Powell said the current trend shows that the Fed’s inflation-fighting job is not over.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell told the Senate Banking Committee.
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he added.
The Fed raised its benchmark fund rate eight times over the past year to its current targeted level between 4.5 percent to 4.75 percent, trying to contain inflation that remains stubbornly above its long-term target of 2 percent.
Despite its forceful moves, the Fed's favored inflation measure, personal consumption expenditure, rose slightly to reach an annual rate of 5.4 percent in January.
“We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do,” Powell said.
Powell on Tuesday spoke to the Senate Banking, Housing and Urban Affairs Committee and will address the House Financial Services Committee on Wednesday.
His remarks albeit are limited in guidance due to the reports on hiring and inflation that are to be released after he testifies and before the next Fed meeting on March 22-23.
“Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time,” Powell said. “The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”
Powell reiterated that rate decisions will be made “meeting by meeting” and will be dependent on data and their impact on inflation and economic activity, rather than a preset course.
By the end of Powell’s testimony, investors anticipated the fed-funds rate would rise to between 5.5 percent and 5.75 percent this year, and the probability of a half-point hike this month rose to around 63 percent, from 32 percent before the hearing, reported the Wall Street Journal.
