Powell insists on the need to keep raising interest rates

“As we said, we think we should raise interest rates further and we think we should hold on to policy for a while.” “probably going to have ups and downs“, he pointed out in a speech at the Economic Club of Washington.

The head of the regulator reminded that the Fed’s goal is to return. inflation to 2% and that it won’t happen right away. While the Fed expects 2023 to be “a year of significant declines,” Powell said it “will need to approach 2% not just this year, but next year as well.”

Therefore, he insisted, “we’re going to have to do more rate hikes, and then we’ll have to look around and see if we’re doing enough.”

Eighth consecutive increase in interest rates

Powell made the remarks a week after the Fed announced its eighth consecutive quarter-point hike. slowing down on climbs.

With this increase, the rates remained below the previous increases and were between 4.5% and 4.75%, the highest level since September 2007.

Since it reached its peak in June (9.1%), Inflation in the US fell to 6.5 percent and December fell for the sixth month in a row, a sign that rate hikes are starting to have an impact on the US economy, analysts say.

However labor market stay strong, as data for January show. Powell acknowledged that more than half a million jobs were created, questioning traditional economic theories that “something no one expected” and that rate increases strongly affect a country’s labor market.

“If you look at history, there’s a certain weakening in the labor market (when rates go up) and it’s still possible, but this cycle is different from other cycles,” he said, mainly because the pandemic is over.

Now, the head of the regulator explained, if the supply of workers is observed against the demand for workers, the demand is 5 million more than the current supply.

“This was not the case before the pandemic, which left a significant and lasting mark on the US workforce,” he said.

According to him, while the economy will need to slacken to keep inflation down, it’s not a bad thing if the labor market remains strong. “The job market is strong because the economy is strong. “As I mentioned, it’s good that we can see the fall in inflation begin before we see the labor market weakening,” he said.

US economy growth

According to the first annual gross domestic product (GDP) calculation by the Bureau of Economic Analysis (BEA) on January 26, it was learned that the US economy grew by 2.1% in 2022.

According to this statistic, US GDP up 0.7% Compared to the previous quarter, this means an annual growth rate of 2.9%.

By 2023, the economy is expected to moderate. According to recent estimates, International Monetary Fund (IMF), the United States will grow by 1.4% in 2023 and just 1% in 2024.

All this in an environment marked by uncertainty over the war in Ukraine, and interest rate hikes by other central banks will have side effects beyond the fall in inflation.

To try to rein in inflation, the Fed hesitantly began a series of rate hikes of 0.25% in March 2022. It increased rates by half a percentage point in May and started a 75 integer increase streak in June, then dropped again last December and rose 0.5%.