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US Federal Reserve Chairman Jerome Powell argued to lawmakers on Capitol Hill that if the economy continues in its current direction, interest rates will likely need to rise to contain price pressures, despite the break last week.
The head of monetary policy in the United States, Jerome Powell, participated in a three-hour hearing before the Committee on Financial Services of the House of Representatives, where he defended the recent “pause” in interest rates and pointed out the fact that that most policymakers see two more rate hikes likely by the end of the year.
“We don’t use the word pause and I wouldn’t use it here today,” Powell said. Two likely rate hikes are seen in the Fed’s Summary of Economic Forecasts as “a pretty good estimate of what will happen if the economy performs as expected,” Powell said.
Despite the fact that the economy is characterized by modest growth and the labor market is still strong, underlying inflation, which eliminates the price of energy and food due to volatiles, has not subsided yet. This is the main reason that justifies possible rate hikes in the medium term.
The Fed began its interest rate hike campaign last March for 15 consecutive months and pushed rates to a range of between 5% and 5.25%. “If we just push further rate hikes, we could unnecessarily take too much momentum out of the economy,” Atlanta Fed President Raphael Bostic said.
Bank regulation in sight
Republican lawmakers were concerned that a series of bank failures in the United States would lead the Fed to put too much pressure on the financial sector with changes to capital rules.
“There are several proposals underway. They have not been finalized,” Powell responded to lawmakers who questioned why the Fed is considering forcing banks to raise more capital, but defended the stability of the financial system. Powell claimed that the failure of institutions like Silicon Valley Bank was largely the result of mismanagement.
On this, the president of the Fed said that any change in capital standards or other regulations “would have to show that it is justified”, although he tried to reassure that these measures “will take time” and should not affect the sector in the short term.
With AP and Reuters
