Advertisement

Fed chief opens door to higher, possibly faster rate hikes

STORY: After months of aggressive rate hikes to tame inflation, Fed Chair Jerome Powell told a senate hearing Tuesday that the job’s still not finished…

Warning lawmakers the U.S. Federal Reserve may have to pick up the pace and the size of interest rate hikes to get prices under control.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we'd be prepared to increase the pace of rate hikes.

Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.”

The comments were Powell's first since inflation unexpectedly jumped in January and marked a stark acknowledgement that the "disinflationary process" he spoke of repeatedly in a Feb. 1 news conference was not unfolding smoothly.

Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy. The central bank’s monetary policy committee meets March 21 and 22 and investors boosted bets to more than 70% that the Fed would approve a half-percentage-point rate hike at that meeting. Equity markets fell sharply in mid-day trading tuesday – as investors had hoped the fed might soon start easing up on its inflation campaign. The March 10 release of the Labor Department's jobs report for February and an inflation report next week will be key data in shaping that outcome.

Powell also indicated labor market conditions would need to soften. Unemployment remains at a more than 50-year low. Several senators picked up on this comment with Elizabeth Warren of Massachusetts pointing out that the Fed’s latest projections indicate the unemployment rate would climb 1-percentage point at the predicted path of rate hikes... which means two-million Americans would lose their jobs.

"So, chair Powell, if you could speak directly to the 2,000,000 hardworking people who have decent jobs today who you're planning to get fired over the next year, what would you say to them? How would you explain your view that they need to lose their jobs?"

"I would explain to people more broadly that that inflation is extremely high and it's hurting the working people of this country badly. All of them, not just two million of them, but all of them are suffering under high inflation and we are taking the the only measures we have to bring inflation down."

"Putting 2 million people out of work is just part of the cost and they just have to bear it."

"Will they will will working people be better off if if we just walk away from our jobs and and inflation remains five, 6%?"

Powell testifies before a House Committee Wednesday.