What You Need to Know
- The latest quarterly projections show 13 of 18 officials favor at least one rate increase by the end of 2023.
- Powell’s term as chair is up in February and the White House has been quiet about his renomination prospects.
- U.S. central bankers say they will continue buying at a $120 billion monthly pace until the economy has made “substantial further progress” toward its employment and inflation goals.
Federal Reserve Chair Jerome Powell said the price increases seen in the economy recently are bigger than expected but reiterated that they will likely wane.
“A pretty substantial part, or perhaps all of the overshoot in inflation comes from categories that are directly affected by the re-opening of the economy such as used cars and trucks,” Powell said Tuesday in response to a question before the House Select Subcommittee on the Coronavirus Crisis. “Those are things that we would look to to stop going up and ultimately to start to decline.”
But the Fed chair acknowledged the uncertainty around that view. “I will say that these effects have been larger than we expected and they may turn out to be more persistent than we expected.”
Stocks climbed after Powell’s remarks. The yield on 10-year Treasuries declined and the dollar fell.
Fed officials responded last week to increasing inflation risks by pulling forward their expected timing and pace of interest-rate increases, from the current near-zero level, while also kicking off a discussion of when to taper asset purchases from their current $120 billion monthly pace at their policy meeting.
The quarterly projections showed 13 of 18 officials favored at least one rate increase by the end of 2023, versus seven in March. Eleven officials saw at least two hikes by the end of that year. In addition, seven of them saw a move as early as 2022, up from four.
The projections also showed that officials’ sense of risk and uncertainty around their inflation forecasts moved higher.
Powell said the Fed would be patient in waiting to lift borrowing costs.
“We will not raise interest rates preemptively because we think employment is too high, because we feared the possible onset of inflation,” he said. “We will wait for actual evidence of actual inflation or other imbalances.”
Powell’s term as chair is up in February and the White House has been quiet about his renomination prospects.
Representative Maxine Waters, the California Democrat who chairs the powerful House Financial Services Committee, praised Powell at the hearing, saying she was “very pleased” with the way Powell gave vocal support to fiscal packages and provided facilities to provide emergency credit.
Fed chairs are picked by the president and confirmed by the Senate, but Waters’ comments provide a marker for sentiment about Powell among progressives.