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Federal Reserve's Powell Emphasizes Careful Approach to Future Rate Hikes

US Federal Reserve Chair, Jerome Powell, addresses the future trajectory of interest rates, emphasizing a cautious pace to avoid economic risks.

Jerome Powell
Jerome Powell

Fed Chair Powell Outlines Prudent Pace for Rate Hikes

Jerome Powell, Chair of the US Federal Reserve, communicated during a Senate Banking Committee hearing on Thursday that the central bank will advance with interest rate increases at a "careful pace". The strategy aims to bring an end to their historical cycle of monetary policy tightening. Powell noted that they are close to their intended destination and moving at a deliberate pace makes logical sense.

The Slowdown in Interest Rate Hikes

Powell explained the Fed's decision to hold rates steady at the last meeting was intended to decelerate the rate of borrowing cost increases. Following a series of 10 consecutive rate hikes, some of which saw increases of three-quarters of a point, the Fed refrained from increasing rates at the June meeting. Investors now anticipate rate hikes to recommence in July, with the Fed possibly assessing the requirement for further hikes every alternate session, akin to previous tightening cycles.

Powell withholds Specific Rate Hike Predictions

Without providing personal predictions on future rate increases, Powell echoed the majority of policymakers who foresee at least two more quarter-point rate hikes by year-end. He reiterated his shared perspective of modest economic growth, a minor rise in unemployment, and a gradual decrease in inflation over the year. This outlook leads most policymakers to believe that one or two more rate increases would be sufficient to counteract inflation.

Lack of Consensus among Fed Officials

The perspective on the necessary rate increase is not universally agreed upon within or outside the Federal Reserve. While Fed Governor Michelle Bowman insinuated at least two more hikes, others like Atlanta Fed President Raphael Bostic argued for a halt on rate increases at the current range of between 5% and 5.25%.

Rates Hike Impact on Economy and Minorities

During the Senate hearing, Democratic lawmakers queried Powell about the necessity of higher rates, given the potential economic perils. Senator Sherrod Brown, chair of the Senate Banking Committee, expressed concerns about the Fed's inflation control measures potentially causing disproportionate job losses among racial and ethnic minorities. Powell responded by underscoring the adverse effects of inflation on working families.

Powell Rules Out Immediate Rate Cuts

When asked about rate cuts, Powell dismissed the idea of any immediate action, stating that it would have to wait until the Fed is confident of inflation decreasing to their 2% target. As of now, prices are escalating at more than double the target rate annually.