From easing up on the brakes to stepping on the gas, the Federal Reserve in the United States is weighing rate hikes to combat inflation. This is a real possibility, and on Tuesday Jerome Powell warned lawmakers in the first of his two days of testimony before Congress that rates could move higher than expected, perhaps more quickly than previously assumed. The next policy meeting is scheduled for March 21 and 22.
In February, the central bank delivered its eighth consecutive rate increase, though the move was a quarter-point rather than a larger step. Powell had signaled that policy would evolve from meeting to meeting, guided by incoming data. That same message was reiterated on Tuesday, with a somewhat aggressive tone that Powell acknowledged would likely affect the labor market by tempering wage growth and potentially lifting unemployment.
swash
“We still have a long way to go to bring inflation back to 2 percent,” Powell said, as he testified before the Senate Banking Committee. He noted that recent economic data had been stronger than anticipated, suggesting that the current level of interest rates may need to rise further. If future data support faster tightening, the Fed would be ready to move accordingly.
Despite signs of progress, including cooling in some commodity prices and forecasts that rents would ease later this year, most indicators remain resilient. January brought an impressive 517,000 job gains, and the unemployment rate dropped to 3.4 percent, a level not seen since 1969. Powell emphasized that while strong wage growth benefits workers, it can also contribute to ongoing inflation if not balanced with tighter policy.
Powell’s remarks drew mixed reactions as the market weighed the potential pace and magnitude of further rate increases. Some observers anticipated a quicker path to higher rates, while others urged caution to avoid destabilizing the labor market. The dialogue reflected a broader debate about how best to curb price increases without stifling growth.