US Federal Reserve Chair Jerome Powell signaled Wednesday that additional interest rate increases are likely to lower inflation.
“Nearly all FOMC (Federal Open Market Committee) participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell wrote in prepared remarks in testimony before the Committee on Financial Services at the House of Representatives.
“But at last week’s meeting, considering how far and how fast we have moved, we judged it prudent to hold the target range steady to allow the Committee to assess additional information and its implications for monetary policy,” he added.
The Fed last week skipped an interest rate increase at the conclusion of its two-day meeting, as widely expected, and kept the federal funds rate unchanged between 5% -5.25%.
The central bank’s latest projections, however, indicate that two more rate hikes by 25 basis points each are possible for the remainder of the year.
“Inflation has moderated somewhat since the middle of last year. Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go,” Powell told the Committee.
Annual consumer inflation came in at 4% in May, the lowest in more than two years and eased from 4.9% in April. Annual producer inflation eased to 1.1% in May — a significant slowdown from April’s annual gain of 2.3%.
“We have been seeing the effects of our policy tightening on demand in the most interest rate–sensitive sectors of the economy. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation,” said Powell.
The economy is facing headwinds from tighter credit conditions for households and businesses, which are likely to weigh on economic activity, hiring and inflation. The extent of these effects remains uncertain,” he added.
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