Powell says U.S. economy can handle the additional rate hikes that are coming

Federal Reserve Chairman Jerome Powell on Wednesday dismissed economists who argue that aggressive Fed interest rate hikes have increased the chances of a recession or a strong landing for the U.S. economy.

“The U.S. economy is very strong and well positioned to handle tighter monetary policy,” Powell said in comments prepared for a Senate Bank Committee hearing. He said gross domestic product has risen from a weak first quarter and consumer spending remains strong.

Powell told lawmakers that the central bank is committed to lowering inflation and that additional rate hikes are approaching. He said only the size of the next moves has not been decided.

“We anticipate that the current tariff increases will be adequate; the pace of these changes will continue to depend on incoming data and the changing outlook for the economy, ”Powell said.

“We will make our decisions meeting by meeting, and we will continue to communicate our thinking as clearly as possible,” he added.

The Fed has already raised its benchmark rate by 1.5 percentage points since March, the fastest pace in decades, as it tries to quickly bring monetary policy back to a more normal level after two years of near-zero levels. to support the economy. during the pandemic.

Powell noted last week that the Fed would choose between a 50-point move or a 75-basis point move at its July 26-27 meeting. This would bring its policy rate closer to 3%.

Projections released last week show that the average forecast for Fed officials is that the benchmark rate is expected to reach just under 4% next year, although some officials expect rates to exceed that level.

Powell told lawmakers that inflation has hit the central bank.

“They could have more surprises,” he said.

“Aggregate demand is strong, supply constraints have been greater and lasted longer than expected, and price pressures have spread to a wide range of goods and services,” Powell said.

“The rise in crude oil and other commodity prices that resulted from the Russian invasion of Ukraine is raising gasoline and fuel prices and is creating additional upward pressure on inflation,” he added.

Measured by the Fed’s favorite indicator, the personal consumption spending price index, general inflation stands at an annual rate of 6.3% in April, while the core, which excludes volatile prices of food and energy, up 4.9%.

Powell said early indicators show that core inflation “probably kept pace or slowed slightly” in May. The government will publish the PCE data for May 30 June.

“We have the tools we need and the decision we need to restore price stability on behalf of American households and businesses,” Powell said.

US DJIA shares,

they will open lower on Wednesday after strong gains from the previous trading session.

The performance of the 10-year Treasury note TMUBMUSD10Y,
it dropped to 3.19%.

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