Jerome Powell’s warning of potentially more aggressive moves led some economists to pencil in higher rates for later this year than they had previously estimated.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell testified to the Senate Banking Committee. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
“The presumption that’s been established is that they will hike in March, unless they are convinced otherwise,” said Derek Tang, an economist at LHMeyer, an economic consulting firm. Sen. Elizabeth Warren, Democrat of Massachusetts, noted that Fed officials have projected that the unemployment rate will reach 4.6% by the end of this year, from 3.4% now. Historically, when the jobless rate has risen by at least 1 percentage point, a recession has followed, she noted.
“If Congress reduced the rate of growth in its spending, and reduced the rate of growth in its debt accumulation, it would make your job easier in reducing inflation?” Sen. John Kennedy, Republican of Louisiana, asked. Such economic figures, Powell said Tuesday, “have partly reversed the softening trends that we had seen in the data just a month ago.”
Rental and housing costs, for example, remain a significant driver of inflation. At the same time, the cost of a new apartment lease is growing much more slowly, a trend that should reduce housing inflation by mid-year, Powell has said.
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