It may make sense for the Federal Open Market Committee to continue raising the federal funds rate to fight inflation, but at a more moderate pace than it has pursued over the past year, Federal Reserve Chairman Jerome Powell said today. Testifying before the House Financial Services Committee, Powell noted the FOMC decided to leave the target range for the rate at 5% to 5.25% during its meeting earlier this month, marking the first pause since it began raising rates last year. But he also pointed out that nearly all participants forecasted that the committee would need to continue raising rates before inflation returns to the Federal Reserve’s 2% target, with a majority predicting at least two more rate hikes. “The level to which we raise rates is actually a separate question from the speed with which we moved earlier in the process,” Powell said.
“We were at 75 basis points [rate hikes] for several meetings, then we were at 50 basis points and at 25 basis points at three consecutive meetings,” he added. “Now we’re monitoring that pace, much as you might do if you were driving 75 miles an hour on the highway, then 50 miles an hour on a local highway, and then as you get closer to your destination—as you try to find that destination—you slow down even further.”
Outside of discussions on monetary policy, committee Republicans pressed Powell on an agency review of capital requirements being led by Fed Vice Chairman for Supervision Michael Barr. “Uncertainty from the Fed supervision and regulation is the last thing the well-capitalized banking system needs now, following numerous supervisory failures and a new vice chair for supervision the Federal Reserve injecting politics into policy,” committee Chairman Patrick McHenry (R-N.C.) said. Powell said several regulatory proposals are currently under review, but they haven’t been finalized nor brought before the Fed board, so he couldn’t comment.
