Jerome Powell: Rates Will Likely Be Higher Than Previously Expected

It appears Fed Chair Jerome Powell isn’t satisfied after all with the supposed “disinflationary process” that he previously insisted is underway in response to the central bank’s fight against inflation.

In a series of prepared comments before Capitol Hill hearings beginning on Tuesday, Powell admitted that the economy still remains in overdrive, and that the current pace of quarter-point rate hikes just aren’t going to cut it anymore. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” he said. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

The central bank’s latest 25 basis-point rate hike brought the federal funds rate to a range between 4.5% and 4.75%. In the meantime, January inflation has moderately softened, but still remains substantially higher than economists’ expectations, while the labour market still remains at full employment. “We will continue to make our decisions meeting by meeting,” Powell explained. “Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.”

Powell’s latest testimony marks the final series of public remarks on interest rates before FOMC members gather for their two-day policy meeting on March 21 and 22. Back in December, the Fed projected the fed-funds rate will sit somewhere between 5% and 5.5% this year and remain there until 2024. However, policy makers are expected to provide updated projections come the next meeting, with markets now forecasting the rate will hit around 5.5% in the second half of 2023 and remain there until the end of the year, according to projections from CME Group.

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