“Earlier in the process, speed was very important,” Powell said Wednesday in testimony before the House Financial Services Committee, referring to the pace at which officials lifted rates over the past year. “It is not very important now.”
It may make sense to continue moving rates higher in the coming months, but at a more moderate pace, Powell said in response to lawmakers’ questions about the Fed’s plans. The timing of additional hikes will be based on incoming data, he said in his opening statement.
US stocks fell as Powell warned that higher rates would be needed to combat inflation, thwarting bets that the US central bank was nearing the end of its tightening cycle.
The Federal Open Market Committee paused its series of interest-rate hikes last week for the first time in 15 months, leaving rates in a range of 5% to 5.25%. But Fed officials estimated rates would rise to 5.6% by the end of the year, according to their median projection, implying two additional quarter-point hikes following surprisingly persistent inflation and labor-market strength.
“My colleagues and I understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2% goal,” Powell said in his prepared remarks.”Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” he added. “Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions.”Powell is appearing on Capitol Hill this week for his semi-annual monetary policy testimony, the first time the Fed chief has answered questions from Congress in public since early March. He will also testify before the Senate Banking committee on Thursday.
