Federal Reserve Insider Says More Hikes Likely Coming Soon

Federal Reserve Insider Says More Hikes Likely Coming Soon

(RightWing.org) РFederal Reserve Chair Jerome Powell testified before the House Committee on Financial Services on Wednesday, June 21, and repeated his testimony for the Senate Committee on Banking, Housing, and Urban Affairs on Thursday, June 22. He submitted the Reserve’s semi-annual Monetary Policy Report, indicating the Fed will likely raise interest rates before the end of the year.

The Current Economic Situation and Outlook

Powell told lawmakers the Reserve Board remains focused on taming inflation to a manageable 2% level and understands the economic hardships high inflation imposes on Americans. He explained that the economy is dependent on price stability to function well. The Federal Reserve controls inflation and price stability through interest rates and available money supply, but the board must balance its actions to avoid tipping the economy into recession.

Powell told Congress that moderate growth occurred while the US economy slowed significantly over the last year. For instance, consumer spending increased, but the housing market remained weak, reflecting the Fed’s higher interest rates over the previous year.

Another economic indicator of overall health and resilience is the tight labor market, which expanded by approximately 314,000 jobs per month. Yet, there was some softening as the unemployment rate rose slightly to 3.7% in May. Still, more Americans in the 25-54 age bracket participated in the job market.

However, the inflation rate remains a key factor for the board, and the current economy is well above the 2% target. The May 12-month average rise in personal consumption expenditures was 4.7%. That compares with a 4% 12-month average increase in the consumer price index (CPI) for May, with a core change of 5.3%. Moreover, inflation rates are down from a year ago but are still too high for optimal stability.

Proposed Monetary Policy

Since March 2022, the Federal Reserve has raised interest rates by five percentage points and reduced securities holdings simultaneously, functionally decreasing the money supply through serial incremental changes. In June, the Federal Open Market Committee (FOMC) — a body consisting of the Federal Reserve, the president of the Federal Reserve Bank of New York and three other Federal Reserve Bank presidents serving rotating one-year terms — decided to pause rate adjustments to allow for lag effects to manifest in the economy before moving forward with more adjustments.

However, inflation data has convinced nearly all FOMC members that additional rate adjustments, possibly in consecutive sessions before the end of the year, will likely be necessary. Powell stressed that the FOMC would make its decisions on a meeting-by-meeting basis, taking market and economic conditions into consideration.

Copyright 2023, RightWing.org