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Predicted Federal Reserve Rate Hikes Indicative of Economic Path, Says Powell

Aiming to understand the Federal Reserve's upcoming actions, Jerome Powell provided some insight during a recent hearing on Capitol Hill.

Jerome Powell
Jerome Powell

Powell’s Remarks: Deciphering Future Rate Hikes

Federal Reserve Chair Jerome Powell hinted at a probable direction for the central bank, should the economy continue its current trajectory. During his presentation to lawmakers on Capitol Hill, Powell revealed that additional rate increases were a "pretty good guess." He disputed the notion of the Federal Reserve's recent decision to keep interest rates steady as a "pause." He emphasized that most policymakers foresee two more quarter-point rate increases by year's end, should the economy perform as expected.

The Evolving Discourse among Fed Officials

As Powell spoke, the debate among other Federal Reserve officials was becoming more apparent, with differing opinions on the necessity of further rate increases. Chicago Fed President Austan Goolsbee characterized the bank's stance as a "wait and see" mode, pending further data. Atlanta Fed President Raphael Bostic was more cautious, suggesting a delay in deciding further rate increases past the July meeting to avoid potential harm to the economy.

Banking Regulations: A Point of Concern

Powell's comments took a turn to the subject of banking regulations, where he addressed concerns about potential backlash from the financial sector due to more stringent capital and other rules. He noted that any alterations to capital rules or other regulations would require justifiable cause and would not have an immediate impact on the industry.

Powell's Views on Inflation

On monetary policy, Powell focused on the bank's efforts to decrease inflation, stating that the process is far from complete. Despite the Fed's decision to hold off on raising interest rates at their last meeting, Powell described this as an act of prudence, allowing for more data collection before deciding on future rate hikes that most policymakers anticipate to be needed by year's end.

Joe Biden
Joe Biden

The Impact on the 2024 Presidential Election

How the Fed manages its monetary policy could have significant implications for the next presidential election, affecting the economic backdrop against which incumbent Democrat Joe Biden and Republican former President Donald Trump will compete. The success of the Fed's policy could lead to a "soft landing" of ongoing economic growth, lower inflation, and slightly increased unemployment. On the flip side, it could set a scene of rising unemployment, stubborn inflation, and harsh interest rates.

Current Benchmark Interest Rate Status

The Fed's most recent meeting concluded with the benchmark interest rate held steady at a level between 5% and 5.25%. Nevertheless, officials projected that rates will need to rise by another half percentage point by year's end due to inflation declining at a slow pace and remaining well above the Fed's 2% target.