Fed Chair: Future Rate Hikes Depend on Whether Inflation Begins to Decline

Federal Reserve Chair Jerome Powell on Wednesday used prepared testimony in front of the Senate Banking Committee to emphasize the Fed’s determination to raise interest rates high enough to slow inflation.

But the Associated Press and other outlets are reporting that commitment has fanned concerns that the central bank’s fight against surging prices could tip the economy into recession.

Powell said the decision on future rate hikes will depend on whether — and how quickly — inflation starts to decline, something the Fed will assess on a “meeting by meeting” basis, the AP reported.

Its decision-making will be based on “the incoming data and the evolving outlook for the economy,” Powell said in his testimony,  part of the Fed’s semiannual policy report to Congress.

The Fed last wee raised its benchmark interest rate by three quarters of a percentage point, its biggest hike in nearly three decades, to a range of 1.5% to 1.75%. The Fed also forecast a more-accelerated pace of rate hikes this year and next than they had predicted three months ago. Its key rate could reach 3.8% by the end of 2023, which would be its highest level in 15 years.

The AP reported that concerns are growing the Fed will end up tightening credit so much as to cause a recession. This week, Goldman Sachs estimated the likelihood of a recession at 30% over the next year and at 48% over the next two years.

Last week, Powell suggested that a rate hike of either one-half or three-quarters of a point will be considered at the Fed’s next meeting in late July. Either one would exceed the quarter-point Fed hikes that have been typical in the past, and they reflect the central bank’s struggle to curb high inflation as quickly as possible.

On Wednesday, the Fed chair said the central bank’s policymakers “will be looking for compelling evidence that inflation is moving down” over the coming months before they would ease their pace of rate hikes

For now, most analysts expect a second three-quarter-point rate hike late next month and at least a half-point rate increase when the Fed meets again in September, according to AP.