Jerome Powell
The Federal Reserve will increase the pace of interest rate hikes if the forthcoming economic data deems it appropriate, but regardless, the central bank's fight to tamp inflation is far from over, Federal Reserve Chairman Jerome H. Powell said Tuesday.
"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," Mr. Powell said in testimony before the Senate Banking Committee.
The Federal Open Market Committee has raised interest rates precipitously over the last year, including a 25-basis-point hike at its last meeting in February. The federal funds rate now stands at a range of 4.5% to 4.75%. The 25-basis-point hike in February followed a 50-basis-point in December, and four 75-basis-point hikes in each of the committee's previous four meetings.
"Over the past year, we have taken forceful actions to tighten the stance of monetary policy," Mr. Powell said. "We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do."
He noted that while inflation has slowed in recent months, it's still elevated. The 12-month change in total personal consumption expenditures prices has slowed to 5.4% in January from its peak of 7% in June as energy prices have declined and supply chain bottlenecks have eased, Mr. Powell said. Also, the unemployment rate dipped to 3.4% in January.
The Fed has no plans to change its rate-hiking course, Mr. Powell 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," he said. "Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time."
He added, "Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done."
In a testy exchange during the hearing, Sen. Elizabeth Warren, D-Mass., asked Mr. Powell what he would say to the 2 million people who are projected to lose their jobs as a result of the Fed raising rates to slow the economy. At its December meeting, the committee projected the unemployment rate would rise to 4.6% by the end of 2023.
Mr. Powell responded by saying he'd explain to people that "inflation is extremely high and it's hurting the working people of this country badly — all of them, not just 2 million of them, but all of them are suffering under high inflation, and we are taking the only measures we have to bring inflation down."
Ms. Warren followed up, "And putting 2 million people out of work is just part of the cost and they just have to bear it?"
Mr. Powell responded, "Will working people be better off if we just walk away from our jobs and inflation remains 5-6%?"
The Fed committee's next meeting is March 21-22 when another rate hike is expected.
