Federal Reserve chairman Jerome Powell on Wednesday affirmed that more interest-rate hikes are on the way as inflation in the United States is still too high above the central bank’s target of 2 percent.
“Nearly all” participants in the policy-making Federal Open Market Committee (FOMC) “expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell said during his semiannual monetary policy report to the House Financial Services Committee.
Since last March, the Federal Reserve has elevated short-term rates in 10 consecutive policy meetings by a total of 5 percentage points. The bank’s target interest rate is currently set at a range of 5.0–5.25 percent, the highest since 2007.
Amid the aggressive streak of rate hikes, inflation “has moderated somewhat since the middle of last year,” according to Powell. Since peaking at 9.1 percent last June, inflation has come down, with the Consumer Price Index climbing to an annual rate of 4 percent in May. When excluding volatile food and energy prices, the “core” inflation was 5.3 percent for the 12 months ended in May.
Both figures are still well above the Fed’s 2 percent inflation target.
“Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go,” Powell told congressional lawmakers.
When it comes to the current economic situation, Powell said the U.S. economy “slowed significantly” last year, with signs that supply and demand in the labor market are “coming back into better balance,” though it remained “very tight.”
“The economy is facing headwinds from tighter credit conditions for households and businesses, which are likely to weigh on economic activity, hiring, and inflation,” he added. “The extent of these effects remains uncertain.”
Following last week’s FOMC meeting, the rate-setting officials said they unanimously agreed to take a break from the most aggressive rate-hiking campaign in decades and keep the interest rate steady at a range of 5.0–5.25 percent.
Just days after the meeting, however, two FOMC members called for a more tightened monetary policy to bring inflation down to the 2 percent target.
“We’re seeing policy rates having some effects on parts of the economy. The labor market is still strong, but core-kind of inflation is just not moving and that’s going to require probably some more tightening to try to get that going down,” Federal Reserve governor Christopher Waller said on June 16 during a forum hosted by the Norges Bank and the International Monetary Fund, in Oslo, Norway.
Waller’s sentiment was echoed by Thomas Barkin, president of the Federal Reserve Bank of Richmond, who said on the same day that he feels “comfortable” bringing interest rates even higher.
“I am still looking to be convinced of the plausible story that slowing demand returns inflation relatively quickly to that target,” Barkin said while speaking at the Maryland Government Finance Officer Association. “If coming data doesn’t support that story, I’m comfortable doing more.”
Some Democrats are pushing back on the Federal Reserve’s interest-rates hikes, warning that it could hurt the economy and turn millions of Americans jobless.
In a May 2 letter to Powell, a group of 10 members of Congress, led by Sen. Elizabeth Warren (D-Mass) and House representatives Pramila Jayapal (D-Wash.) and Brendan Boyle (D-Penn), argued that the Fed should pause its rate hikes in order to avoid “engineering a recession that destroys jobs and crushes small businesses.”
“While the Fed should remain flexible to incoming data as it assesses the economy’s progress toward achieving lower inflation, the evidence to date suggests that progress can continue to be made without slamming the brakes on the economy and costing millions of Americans their jobs,” they wrote.
Meanwhile, the Republicans argued that the aggressive tightening of monetary policy is but a “chronic symptom” of the tax-and-spending spree by the Democrats.
“Democrats’ reckless spending has forced the Federal Reserve to hike interest rates to fight President Biden’s inflation crisis,” House Ways and Means Committee chairman Jason Smith (R-Mo.) said in May, following the most recent interest rate hike.
“Americans are living in a reality hand crafted by failed Democrat policies of reckless spending and higher debt. President Biden should take this latest rate increase as a sign it’s past time to work with Republicans to get our nation’s fiscal house in order by reining in spending and strengthening the economy.”
From The Epoch Times