The Federal Reserve needs to see more evidence of a decline in US inflation before pausing on interest rate hikes, Chairman Jerome Powell said
WASHINGTON (Pakistan Point News / Sputnik - 02nd February, 2023) The Federal Reserve needs to see more evidence of a decline in US inflation before pausing on interest rate hikes, Chairman Jerome Powell said.
"The inflation data received over the past three months show a welcome reduction in the monthly pace of increases," Powell told a news conference on Wednesday. "While recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path."
Powell was speaking after the Fed announced a 25-basis point interest rate hike for February, its smallest in almost a year, as inflation cooled in the United States recent months.
The Consumer Price Index, the broadest measure of inflation, rose by 6.5% in the 12 months to December - at least three times above the Fed's 2% per year target. Still, that was markedly lower than the 9.1% annual growth in June, when inflation was at four-decade highs from trillions of dollars of relief spending during the coronavirus pandemic.
Powell, however, said two more interest rate hikes after February could get the United States to what he called a "restrictive stance" to fight inflation.
Over the past 11 months, the Fed has added 425 basis points to rates, which peaked at just 25 basis points after the COVID-19 outbreak in March 2020.
"So, we raised rates to 4.5 percentage points, and we are talking about a couple more rate hikes to get to the level we think is appropriately restrictive," Powell said.
One reason inflation has been hard for the Fed to fight is the dynamic US jobs market, with unemployment at more than 50-year lows and average monthly wages growing without stop since March 2021.
Such job security and earnings have cushioned many Americans from the worst price pressures since the 1980s and encouraged them to continue spending, further feeding inflation.
"Although the pace of job gains has slowed over the past year and nominal wage growth has shown some signs of easing, the labor market continues to be out of balance," Powell said.
The Fed has a delicate job in trying to balance jobs with inflation. Both are top priorities for the central bank, which is mandated with ensuring "maximum employment" through a jobless rate of 4% or below, and keeping inflation manageable - a mission it easily achieved before the pandemic when prices expanded less than 2% per year.
