Jay Powell says June rate is ‘prudent’ but US inflation battle is not over

Jay Powell is set to defend the Federal Reserve’s decision to skip an interest rate hike at its most recent policy meeting but will signal that the fight against inflation is far from over, ahead of a high-stakes congressional appearance on Wednesday. In prepared remarks for.

Powell, the US central bank chairman, will tell lawmakers on the House Financial Services Committee last week it was “prudent” to skip a rate hike “given how far and how fast” the Fed plans to raise its benchmark rate through March 2022. . In one year, the federal funds rate has moved from near zero to a range of 5 to 5.25 percent.

It will take time for the “full effects of monetary restraint” to be felt, Powell will say in opening remarks on the first two days of semi-annual testimony to Congress. He would also highlight that the world’s largest economy could be “resistance” to a tightening in credit standards following the collapse of Silicon Valley Bank in March.

However, Powell will indicate that the central bank still has a lot to do in terms of squeezing the economy to get inflation under control.

“Inflation has come down somewhat since the middle of last year,” he would say. “Nevertheless, inflationary pressures continue to remain high, and the process of bringing inflation back to 2 per cent has a long way to go.”

His comments come after the Fed’s latest policy meeting last week, in which officials opted to hold rates steady after 10 consecutive hikes after assessing whether the central bank needs to borrow more to control extremely high inflation. How much more will the cost need to be increased. ,

Powell last week billed the move as both “appropriate” and “common sense” as he was forced to defend the Fed’s decision, which has turned into the most aggressive monetary tightening campaign in decades. , when inflation concerns are rife.

Fed officials indicated, in the latest “dot plot” of individual estimates, their support for two more quarter-point rate hikes this year, despite the latest meeting being held. And Powell indicated at the time that the first of those could come as early as the next policy meeting in July.

If both increases are implemented, the funds rate will eventually rise from 5.5 to 5.75 percent. No reduction is expected until 2024.

Democratic lawmakers are poised to press Powell on the economic pain associated with the Fed’s efforts to stamp out inflation. Most Fed officials now expect stronger growth this year than they did three months ago, according to estimates released last week, but the unemployment rate is still expected to be about 1 percentage point above its current level of 3.7 percent. Growth of that magnitude is typically associated with a recession.

Meanwhile, Republicans may question Powell over his decision to pause the monetary tightening campaign amid continuing concerns about price pressures.

In the latest forecasts, Fed policymakers revised their expectations for how soon “core” inflation, which separates food and energy prices, will ease this year. Most now expect that to drop to just 3.9 percent by the end of the year, up 0.3 percentage points from the penciled in March. It has been around 4.7 per cent in recent months.

Jay Powell is set to defend the Federal Reserve’s decision to skip an interest rate hike at its most recent policy meeting but will signal that the fight against inflation is far from over, ahead of a high-stakes congressional appearance on Wednesday. In prepared remarks for.

Powell, the US central bank chairman, will tell lawmakers on the House Financial Services Committee last week it was “prudent” to skip a rate hike “given how far and how fast” the Fed plans to raise its benchmark rate through March 2022. . In one year, the federal funds rate has moved from near zero to a range of 5 to 5.25 percent.

It will take time for the “full effects of monetary restraint” to be felt, Powell will say in opening remarks on the first two days of semi-annual testimony to Congress. He would also highlight that the world’s largest economy could be “resistance” to a tightening in credit standards following the collapse of Silicon Valley Bank in March.

However, Powell will indicate that the central bank still has a lot to do in terms of squeezing the economy to get inflation under control.

“Inflation has come down somewhat since the middle of last year,” he would say. “Nevertheless, inflationary pressures continue to remain high, and the process of bringing inflation back to 2 per cent has a long way to go.”

His comments come after the Fed’s latest policy meeting last week, in which officials opted to hold rates steady after 10 consecutive hikes after assessing whether the central bank needs to borrow more to control extremely high inflation. How much more will the cost need to be increased. ,

Powell last week billed the move as both “appropriate” and “common sense” as he was forced to defend the Fed’s decision, which has turned into the most aggressive monetary tightening campaign in decades. , when inflation concerns are rife.

Fed officials indicated, in the latest “dot plot” of individual estimates, their support for two more quarter-point rate hikes this year, despite the latest meeting being held. And Powell indicated at the time that the first of those could come as early as the next policy meeting in July.

If both increases are implemented, the funds rate will eventually rise from 5.5 to 5.75 percent. No reduction is expected until 2024.

Democratic lawmakers are poised to press Powell on the economic pain associated with the Fed’s efforts to stamp out inflation. Most Fed officials now expect stronger growth this year than they did three months ago, according to estimates released last week, but the unemployment rate is still expected to be about 1 percentage point above its current level of 3.7 percent. Growth of that magnitude is typically associated with a recession.

Meanwhile, Republicans may question Powell over his decision to pause the monetary tightening campaign amid continuing concerns about price pressures.

In the latest forecasts, Fed policymakers revised their expectations for how soon “core” inflation, which separates food and energy prices, will ease this year. Most now expect that to drop to just 3.9 percent by the end of the year, up 0.3 percentage points from the penciled in March. It has been around 4.7 per cent in recent months.