Federal Reserve Chair Jerome Powell said during testimony to the Senate Banking Committee Tuesday that, due to an unexpectedly strong economy in 2023 so far, the Fed may speed up interest rate hikes more than expected to combat inflation.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said. “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’s comments follow a period of sustained inflation, with prices rising 0.5% on a monthly basis in January after declining by 0.1% in December, while increasing 6.4% on an annualized basis from 6.5% in December, according to the Labor Department.
On Feb 1, the Federal Reserve increased the federal-funds rate by .25%, the slowest in a series of eight hikes since March 2022, bringing federal interest rates to between 4.5% and 4.75%.
Powell repeated his goal of reaching the benchmark of 2% inflation, but the road to get back down to that is “likely to be bumpy.”
The economy has seen hiring, spending, and inflation all clock in higher than anticipated, with the Fed attempting to cool down the economy with higher interest rates in order to lower inflation. As of December 2022, most Fed officials projected they would increase interest rates in 2023 to between 5% and 5.5% into 2024, according to The Wall Street Journal.
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