(CNN) — The Federal Reserve is prepared to increase the pace of its rate hikes if economic data continues to come in hot, Fed Chair Jerome Powell told the Senate Banking Committee on Tuesday as part of his semi-annual testimony.
The US economy “slowed significantly” last year and inflation has moderated some, Powell said, but the process of getting back to the Fed’s 2% target rate will “likely be bumpy.”
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said Tuesday. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
The Federal Reserve’s preferred inflation gauge heated up unexpectedly in January, as did consumer spending, showing the continued strength of the US economy — and that rising prices won’t be so easily defeated.
Powell is appearing before the Senate committee to deliver the first part of his two-day semiannual monetary policy testimony before Congress.
It’s his first appearance before the committee since June last year, when inflation was on its way to 9%.
Powell spoke to the progress the US central bank has made in its yearlong campaign to rein in high inflation by ratcheting up its benchmark interest rate from near zero to between 4.5% to 4.75%.
Inflation has slowed in recent months, measuring 6.4% in January after hitting a 40-year high of 9.1% in June. However, the battle is not yet won, and Powell and other Fed officials have cautioned that disinflation will be bumpy and there’s a long “ways to go.”
Fed policymakers have warned in recent weeks that interest rates will likely have to remain higher for longer in order for inflation to settle down to the central bank’s 2% target.
This time last year, Powell’s congressional address came on the heels of Russia’s invasion of Ukraine, surging gas prices and a significant escalation in US inflation. The economy continuing to rebound and repair itself from the lingering effects of the pandemic — including the disruptions of the Omicron variant.
Faced with a strong labor market, uncertain geopolitical developments and surging inflation, Powell told members of Congress then that he’d likely propose a quarter-point rate hike at the central bank’s forthcoming meeting.
It’s now March 2023, and the central bank is faced with an “extraordinarily strong” labor market, ongoing geopolitical uncertainty and stubborn inflation. However, there are signals that some inflationary pressures have eased: China’s economic growth was recently downgraded; and supply chain disruptions are easing, the Federal Reserve Bank of New York reported Monday.
Still, several major pieces of economic data — including the latest labor turnover report, monthly jobs report, Consumer Price Index, Producer Price Index, and retail sales — are all due ahead of the Fed’s next policymaking meeting on March 21-22.
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