Fed chairman says recent data may indicate bigger boosts to the interest rate are needed to tame inflation
Federal Reserve Chairman Jerome Powell told lawmakers that the central bank will likely need to raise interest rates more than expected in response to data indicating the economy is not cooling off as much as expected.
The bank’s leaders have been boosting interest rates in an attempt to rein in inflation, but the recent data indicates that larger rate increases above the quarter-percentage point level may be required. If the economic data warrants a bigger boost, Powell said the bank would be prepared to increase the pace of the rate hikes as needed.
January saw both a higher inflation rate that increased unexpectedly and a large increase in payroll jobs for the month. Economists now expect the Fed to approve a half-percentage point rate increase at its next meeting later this month. The next jobs report is due Friday, which will help shed some insight as to what direction the Fed may choose to take, as it will help determine whether they are slipping behind the inflation curve.
Powell told lawmakers that the process of getting inflation back to 2% has a long way to go and would not be easy. He also said that the effects of the previous rate hikes may not have fully hit the economy yet, and that there may need to be a weakening in the labor market for prices to fall in the services sector.
Some key indicators have moved in a direction that the Fed wants, with inflation peaking at an annual rate of 9.1% in June, while the Consumer Price Index dropped to 6.4% in January. The preferred measure by the Fed, the Personal Consumption Expenditures price index, peaked at 7% in June and as of January, was down to 5.4%.