Inflation: Further Rate Increases Likely, Amount Uncertain, Fed Chair Says
Jerome Powell, Fed Chair

Inflation: Further Rate Increases Likely, Amount Uncertain, Fed Chair Says

The Federal Reserve will continue to tighten rates as inflation remains well above the Fed’s target, but the pace will be determined meeting by meeting, Chairman Jerome Powell said before the Senate Banking Committee Wednesday.

Powell said that he expects that the federal funds target rate will need to be lifted above the long-term neutral rate of 2.5% to bring down inflation and acknowledged that while there is the possibility of a recession, it is the Fed’s intention to slow the pace of demand growth, not reverse it.

“I don’t think we will need to prompt a recession,” Powell said but repeated that it is essential to bring down inflation and address an “unsustainably hot” jobs market and brisk wage growth.

Acceleration in recent inflation indicators prompted the Fed to raise the federal funds target rate band by 75 basis points at its recent meeting and markets expect that another increase of this size is possible at coming meetings. Participants were looking for clues from Powell’s testimony that those expectations are well-grounded.

Powell noted that markets have been reading the Fed’s intentions appropriately to this point. READ: 83 Countries Benefit from IMF $165 loans in 2020 -Report

However, in both his prepared statement and his answers to questions from senators, Powell emphasized that uncertainty means that the Fed will need to be “nimble” in setting policy and will make decisions at the time of a meeting rather than in advance.

“We will make our decisions meeting by meeting, and we will continue to communicate our thinking as clearly as possible,” Powell said in his prepared statement.

“Our overarching focus is using our tools to bring inflation back down to our 2 per cent goal and to keep longer-term inflation expectations well anchored.” #Inflation: Further Rate Increases Likely, Amount Uncertain, Fed Chair Says

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