Powell expects Fed to pick up pace of rate hikes

Recent economic data suggests the Federal Reserve will need to continue to raise interest rates this year to slow inflation and possibly push rates higher than previously projected, Fed Chairman Jerome Powell told lawmakers on the Senate Banking Committee today. In prepared remarks, Powell said the latest economic data have come in stronger than expected, with little sign of disinflation in core services—excluding housing—and the labor market remaining tight. That data “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 Federal Open Market Committee has raised the federal funds rate during each of its previous eight meetings, most recently raising the rate from 4.5% to 4.75% during its February meeting. Asked where the rate could ultimately end up, Powell said the median assessment of FOMC members during its December meeting ranged from 5% to 5.5%. FOMC members will meet again later this month and make new assessments at that time. “The data we’ve seen so far, and we still have other data to see… suggest that the ultimate rate we write down may be higher than what we wrote down in December,” Powell said.

The Fed chairman was also asked about remarks by Fed Vice Chairman for Supervision Michael Barr suggesting that significant changes are likely to result from a “holistic review” of bank capital standards. Powell said it is not uncommon for vice chairmen to take a “fresh look” at the standards, with any changes needing approval by the Fed board. He also said, when pressed, that the Fed is committed to tailoring regulation according to an institution’s risk profile, “and that is a principle that we’ll stick with.”