Fed. Chair Powell Signals Resumption Of Rate Hike Campaign
U.S. Federal Reserve Chair Jerome Powell indicated on Thursday that the central bank is likely to resume its rate hike campaign, following a break earlier this month. The remarks from Powell came as a fresh batch of stronger-than-expected economic data highlighted the need for further monetary tightening.
On June 29, Federal Reserve Chairman Powell said in Madrid, Spain: "a strong majority" of Fed policymakers expect they will need to raise interest rates at least twice more by year's end. The Fed will hold four more policy meetings this year, with the next one on July 25-26.…
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Fed Anticipates Multiple Rate Hikes
Speaking at an event in Madrid hosted by the Spanish central bank, Powell stated, “We expect the moderate pace of interest rate decisions to continue,” referring to the recent pause in rate hikes. He pointed out that the labor market is tight, with unemployment at a low of 3.7%. Additionally, underlying inflation, although lower than its peak last year, still remains above the Federal Reserve’s target of 2%. Despite leaving the policy rate unchanged earlier this month after a series of 10 consecutive rate hikes, Powell indicated that “a strong majority” of Fed policymakers anticipate raising interest rates at least twice more by the end of the year. The next policy meeting is scheduled for July 25-26, and the Fed has four more meetings left in the year.
Following Powell’s comments, new data was released showing an unexpected decrease in U.S. unemployment claims last week, while first-quarter gross domestic product (GDP) growth was revised higher than previous estimates. The positive economic data led traders to increase their bets on a rate hike in July, with a 40% probability of another increase in November.
Limited Impact of GDP Revision on Fed Policy
However, some economists cautioned against overinterpreting the data. Richard Moody of Regions Financial Corp noted that the GDP revision has limited implications for Fed policy, as it was primarily driven by healthcare expenditures. Moody highlighted a deterioration in business investment, suggesting a more nuanced economic outlook.
Atlanta Fed President Raphael Bostic, speaking in Dublin, argued for maintaining steady rates, expressing less urgency than others, including Chair Powell. Bostic emphasized that the current policy rate is sufficient to bring inflation down to the target of 2% within an acceptable timeframe. However, he acknowledged that if inflation deviates significantly from the target or inflation expectations become problematic, further actions may be necessary. The core personal consumption expenditure index, the Fed’s preferred measure of underlying price pressures, is estimated to have risen 4.7% in May compared to the previous year, indicating a prolonged period of elevated inflation. Official figures will be released on Friday, shedding further light on the state of inflation.
