“If the totality of the data indicates that faster tightening is justified, we would be prepared to accelerate the pace of rate hikes,” Powell told the US Senate in his semiannual appearance.
The latest economic data, he added, “has been stronger than expected,” suggesting that “the final level of interest rates is likely to be higher than previously anticipated.”
Restoring price stability will require maintaining “a restrictive monetary policy stance for some time,” the regulator’s president insisted.
The Federal Reserve vs. inflation
In order to reduce inflation, the Fed has carried out a series of rate hikes, eight since a year ago. The last one occurred on February 1 and was lower than the previous ones, 0.25 points.
With this rise, the rates stood in a range of 4.5% and 4.75%, the highest figure since September 2007.
Despite the slowdown in the pace in the last rise, in recent weeks and with this Tuesday’s speech, Powell drops that at the next meeting, to be held on March 21 and 22, the rises could speed up again.
In addition, explained the president of the Fed, at this meeting an update of the estimated final rate will be published, which in December was between 5% and 5.5% and that it will possibly rise.
Since it reached its peak in June (9.1%) of 2022, inflation in the United States has eased to 6.4% in January, when it fell for the seventh consecutive month, although only one tenth, a rate of decline that It’s too slow, according to the Fed.
Thus, Powell explained, the process of bringing inflation back down to its 2% target “has a long way to go and is likely to be bumpy.”
Inflation control: the basis of economic restoration
“Restoring price stability is essential to lay the foundations for maximum employment and stable prices in the long term. The historical records strongly warn against premature relaxation of the policy. We will stay the course until the job is done, ”he concluded in his opening speech.
When asked by several of the senators, Powell said that he is convinced that the objective can be achieved: “Over time, we can achieve inflation of 2% and we will,” he insisted, and the Fed will do “everything necessary to restore price stability, at the same time that we serve the maximum employment”.
Democratic Senator Bob Menéndez asked him if there is not a strong risk that the labor market will suffer, to which Powell replied that for now it is not happening since “we have the lowest unemployment in 54 years”, although there are risks that this will change in the future.
“That moment could come, but we are very far now,” he said.
Powell recognized the uncertainty of these times, where “typical supply and demand problems” are happening but also “things that we have not seen before”, such as the war in Ukraine or the problems with supply chains derived from the pandemic.
“We have a lot of unusual factors and I don’t think anyone knows for sure how this will play out,” he said.
Following Powell’s words, Wall Street, which had opened on mixed ground, moved into the red.
At 11:30 local time (16:30 GMT) the Dow Jones lost 0.97%, the selective S&P 500 fell 1.02% and the composite index of the Nasdaq market, where the main technology companies are listed, lost 1.03%.