Federal Reserve Chair Jerome Powell informed members of the House Financial Services Committee on Wednesday that the central bank will continue to focus its efforts on controlling inflation and is planning further interest-rate hikes in the forthcoming months. Powell acknowledged that the steps needed to return the economy to price stability were not yet fully realised, saying that “we have a long way to go.”
During his testimony, Powell explained that the bank’s decision to hold rates steady in June was informed by a combination of previous rate hikes, the uncertain lags created by monetary policy on the economy, and the potential of tighter credit conditions to slow activity. While he suggested that the Fed’s updated forecasts released last week offered a reasonable path for policy this year, Powell stated that more tightening was expected and he would not use the term ‘pause’.
Officials raised their forecasts for interest rates from 5.1% in March to 5.6% by the end of the year and expect two more rate hikes in 2018 based on their median forecast. However, Powell promised that each policy decision will be made at individual meetings, after considering incoming data and its impact on inflation, economic activity and overall risks to the economy.
Federal Reserve Chairman Testifies on Capitol Hill
The Federal Reserve Chairman, Jerome Powell, recently appeared on Capitol Hill as part of a semiannual report on monetary policy. The appearance came amidst rising inflation that remains more than double the bank’s target, despite 10 consecutive interest rate increases from the central bank. Core PCE, the Fed’s preferred inflation gauge, was up by 4.7% YoY in April.
Powell acknowledged that “inflation has moderated somewhat since the middle of last year,” but emphasized that inflation pressures are still high, affirming that the process of bringing inflation back down to 2% still has a long way to go.
Price growth is likely to cool down only when three conditions are in place: Economic growth will need to be “slower than modest”, supply chain bottlenecks will need to ease up, and labor supply and labor demand will need to rebalance. Powell noted that these conditions are happening much later and at a slower pace than expected.
During the testimony, some lawmakers raised concerns about the potential consequences of the Fed’s efforts to curb inflation. Powell emphasized that the Fed remains committed to its goal of returning inflation to 2%, despite the trade-offs involved, arguing that the long-term benefits will be worth it.
“Price stability is the responsibility of the Federal Reserve, and without it, the economy does not work for anyone,” Powell said.
Asked about the impact of the Fed’s policy on low- and moderate-income communities, Powell affirmed that those families would benefit most from a return to price stability.
Powell Addresses Inflation Concerns and Bank Regulation
Federal Reserve Chairman Jerome Powell recently addressed concerns about inflation and bank regulation in a Congressional hearing. Powell emphasized the importance of getting inflation back under control, particularly for lower-income earners who suffer the most from high inflation.
Lawmakers also questioned Powell about bank regulation and capital requirements following the failure of Silicon Valley Bank earlier this year. While Powell did not provide specifics on forthcoming regulations, he did acknowledge the need for stronger supervision and regulation for banks of that size.
However, Powell also expressed a desire to avoid a one-size-fits-all approach to bank regulation, recognizing the benefits of having banks of different sizes within the system. He cautioned against overregulating smaller banks to the point where their business models are challenged.
Powell is scheduled to testify before the Senate Banking Committee on Thursday at 10 a.m.