Powell Won’t Take Consecutive Hikes Off The Table

Jennifer Schonberger |

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Federal Reserve Chairman Jerome Powell said there is still a risk of doing too little to bring down inflation, noting that he wouldn't take hiking interest rates at two consecutive policy meetings "off the table." When asked whether he thought the risk was still doing too little, Powell replied, "Yes." Powell reiterated that most policymakers expect two more hikes, a point he also made last week while testifying before Congress. The Fed chair also underscored the central bank's latest outlook for inflation, saying that he doesn't see inflation excluding volatile food and energy prices getting back to 2% this year or next. “If you look at the data over the last quarter, what you see is stronger than expected growth, a tighter than expected labor market, and higher than expected inflation,” said Powell. “So that tells us that although policy is restrictive, it may not be restrictive enough and it has not been restricted for long enough.” Powell says the job market is really pulling the economy, with strong wage gains that drive spending and demand. Powell noted that he doesn’t see government spending as a major driver of inflation. President Biden’s infrastructure bill is boosting construction spending, he said, but the fiscal spending that helped Americans through the pandemic has come down. Powell said he thinks there's a “significant probability” that there will be a recession, though he says he doesn’t see that as the most likely case. Powell said the Fed will be “restrictive” as long as the central bank needs to. But if inflation is coming down sharply and officials are confident that inflation is on a path to 2%, “you would begin to think about loosening policy [then],” he said. “But we're a long way from that. That's not something we're thinking about.” The Fed decided not to raise rates at the last policy meeting in June because officials are still trying to assess whether there is further fallout from the bank failures earlier this spring. When a bank failure occurs, credit availability can move down with a lag and the Fed is watching carefully to see if there is further tightening from credit access in addition to the Fed’s rate hikes. So far, the Fed doesn’t see any evidence of that. “Tightening and financial conditions is what we're doing intentionally. The question is whether there is “another channel of that or a greater amount of that coming from what happened in March?”