Federal Reserve Chairman Jerome Powell told lawmakers on Tuesday that policymakers may have to speed up their interest rate hikes to tame high inflation.
With prices continuing to rise at an annualized pace of 6.4%, according to government data, Powell warned it may be a while before Americans see further relief.
“The process of getting inflation back to 2% has a long way to go and is likely to be bumpy,” Powell told the Senate Banking Committee in the first of his semi-annual two-day testimony to Congress on central bank interest rates. told. Policy.
Powell said it could increase the size of its interest rate hike again if the central bank does not see strong progress on reducing inflation in the coming months. After raising rates by at least half a percentage point six times in a row last year, the Fed implemented a smaller quarter-point increase at its last meeting in February.
A return to beefed-up rate hikes could keep consumer-facing interest rates – from mortgages and credit cards to bank deposits – higher for a long time.
The Fed is already raising interest rates at the fastest pace since the late 1980s. But while inflation has eased from a peak of 9.1% in June to 6.5% in December, Powell’s comments on Tuesday signal concern within the Fed that it may have to ramp up its efforts to reform further.
“If the totality of the data indicates that faster tightening is necessary, we would be prepared to increase the pace of rate hikes,” Powell said.
Markets slid in response to his comments, as traders increasingly bet on the Fed raising rates by 0.50% at its next policy-setting meeting on March 22.
Higher interest rates can discourage consumer spending and business investment, as it becomes more expensive to charge for goods and services on credit cards or to take out business loans.
But higher rates could also pose a risk of job losses, as a slowing economy prompts businesses to cut costs by laying off workers. The Fed itself forecasts the unemployment rate to rise. But outside of specific sectors like big tech, the national unemployment rate is at its lowest level in more than 50 years.
“We don’t think we need a significant increase in unemployment, and we’re certainly not aiming for one. But we do think it will take some softening of labor market conditions to achieve 2% inflation,” Powell told lawmakers on Tuesday.
Updated readings on the US jobs market and inflation are expected on Friday and next Tuesday.