Testifying for a second straight day on Capitol Hill about efforts to rein in 40-year high inflation, Federal Reserve Chairman Jerome Powell told members of the House Financial Services Committee Wednesday that no decision has been made yet as to how large an interest rate hike to impose at the central bank’s next meeting in two weeks.
“If — and I stress that no decision has been made on this — if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell testified.
On Tuesday, Chairman Powell told a Senate panel the latest economic data had come in “stronger than expected,” suggesting that interest rates would likely have to go “higher than previously anticipated.”
The remarks sent stocks lower as economists and Wall Street took them to mean the Fed would lift its benchmark rate half a point later this month, instead of another quarter point hike as it approved in February and which most were anticipating later this month.
“My colleagues and I are acutely aware that high inflation is causing significant hardship,” Powell said in his opening remarks Wednesday, acknowledging that inflation has eased since last summer, but noting that the latest economic data are stronger than expected, “which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”
After steep increases in the benchmark interest rate throughout 2022, many analysts thought the quarter point hike February 1 might be the beginning of the end of the Fed’s tightening of borrowing costs. But Powell’s testimony this week suggests that thinking may have been premature.
“Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time,” said the Federal Reserve chairman.
Congressman Frank Lucas (r-OK3) sits on the Financial Services Committee and used his time today, in part, to make sure the Fed is not overstepping its bounds and using monetary policy to promote the administration’s climate policy.
“It’s a very important issue to the 3rd District of Oklahoma — traditional production agriculture, oil and gas,” said Lucas.
Chairman Powell assured Lucas the Fed’s Board is not venturing there.
“I would completely agree with you, though,” Powell added, “that, over time, that border needs to very carefully guarded an I will tell you that I will do that as long as I’m at the Board of Governors.”
The Fed’s next meeting is set for March 21-22.