Federal Reserve Chair Powell Anticipates Two Additional Interest-Rate Hikes Highly Likely

**Federal Reserve Chair, Jerome Powell, Signals Multiple Interest Rate Increases**

Federal Reserve Chair Jerome Powell has stated that at least two interest-rate increases are likely necessary this year in order to bring the inflation rate down to the US central bank’s target of 2%. Powell also mentioned that consecutive policy meetings are not off the table for taking action on the interest rates.

**Committee Participants Expect Multiple Rate Hikes**

Powell stated that “a strong majority of committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year.” He further emphasized that inflation pressures continue to run high and that the process of bringing inflation back down to 2% will take time.

**Rate Pause and Assessment of Policy and Banking-Sector Stresses**

Following the Fed’s last meeting, policymakers decided to hold rates steady for the first time since early 2022. However, they signaled that two more rate increases may be appropriate this year in order to better assess the impact of both policy and banking-sector stresses on the economy. The rates are currently in a range of 5% to 5.25%.

**Previous Rate Increases and Slower Pace**

Last year, the Fed raised rates at a fast pace, with four consecutive three-quarter point hikes starting in March. However, they started slowing down the pace in December, delivering 25-basis-point hikes in each of the first three meetings of this year.

**Uncertainty in the Outlook and Stance of Policy**

Powell mentioned that the outlook is particularly uncertain and that their commitment is not to a specific number of rate hikes but rather to a policy stance that is sufficiently restrictive to bring inflation back to 2%. He added that the timing and extent of further rate increases will depend on the course of the economy.

**Risks of Doing Too Much or Too Little**

According to Powell, the risks of doing too much or too little are not yet in balance. He stated that they may not move for a meeting and then move at a meeting, emphasizing that taking consecutive moves off the table isn’t currently an option.

**Effects of Policy Tightening on the Economy**

Powell highlighted the effects of the Fed’s policy tightening on demand in interest rate-sensitive sectors like housing and investment. He mentioned that it will take time for the full effects of monetary restraint to be realized, especially on inflation.

**Return to Low Rates and Core Inflation**

When asked if the US would return to the low rates of the pre-pandemic years, Powell stated that it wouldn’t be for a “good while” and that he currently lacks a long-run answer to that question. While overall inflation has cooled significantly from last year’s peak, core inflation measures have come down more slowly, which is being closely monitored by Powell and his colleagues.

**Regulation and Oversight of Banks**

Powell addressed the need to strengthen supervision and regulation of institutions following the failure of Silicon Valley Bank and two other US lenders. He expressed his commitment to evaluate proposals for changes and implement them where appropriate, particularly for mid-size banks and the nonbank sector.

**US Banking System Strength and Resilience**

Powell stated that the US banking system is strong and resilient, emphasizing the importance of preserving the size diversity of the country’s banking system. Vice Chair for Supervision Michael Barr is currently reviewing bank regulation and is expected to propose changes soon.

**Price and Financial Stability**

Powell mentioned that delivering price and financial stability are tightly and closely related. The Fed has used separate tools to bring inflation under control and foster financial stability. He acknowledged that the bank stress may lead to a further tightening of credit conditions, in addition to the rate increases induced by the Fed, although the extent of this remains uncertain.

**Balance Between Supply and Demand in the Labor Market**

While the labor market remains tight, Powell acknowledged that some signs are emerging that supply and demand are coming into better balance.

Overall, Powell’s statements signal that multiple interest rate increases are likely this year to tackle inflation and that the timing and extent of these increases will depend on the economic outlook. The Federal Reserve remains committed to a policy stance that brings inflation back to its target of 2% while closely monitoring the effects on the economy and the financial system.

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