Federal Reserve Chairman Jerome Powell double-down on the need for more rate hikes in order to bring inflation back to the central bank's preferred target, telling a panel in Portugal that tight labor markets continue to add to consumer price pressures in the world's biggest economy.
Speaking as part of a discussion on monetary policy at the European Central Bank's annual retreat in the costal Portuguese city of Sintra, Powell said that a "strong majority' of his colleagues see the need for "two or more" rate hikes between now and the end of the year, adding that the labor market continues to pull the U.S. economy into solid growth.
Powell, who joked that the Fed's June decision to hold rates steady at between 5% and 5.25% earlier this month in Washington was neither a pause or a skip but rather a "decision to maintain the Fed Funds rate at its current level for this meeting", said that while the central bank has "come a long way" on rate hikes, but said that policy rates haven't been restrictive for too long.
"Quite a strong majority (of Powell's Open Markets Committee colleagues) wanted two or more rate hikes and the reason for that is that was, if you look at the data over the last quarter, there was stronger-than-expected growth, a tighter-than-expected labor market and higher-than-expected inflation," Powell added. "That tells us that while policy rates are restrictive, they may not be restrictive enough."
""We've got a very strong labor market where jobs are being created with solid wage gains and that's driving real incomes, which is driving spending and in turn more demand," Powell said. "We have only made a decision about the June meeting, but I wouldn't take moving at consecutive meetings off the table at all."
U.S. stocks moved lower in the wake of Powell's remarks, with the S&P 500 falling 12 points in the opening hour of trading and the Dow Jones Industrial Average falling 140 points.
Benchmark 10-year Treasury note yields were marked 1 basis point higher at 3.739% while 2-year notes gained 2 basis points to 4.755%.
The U.S. dollar index, meanwhile, was marked 0.39% higher at 102.881 against a basket of six global currency peers.
Earlier this month, the Fed kept the federal-funds rate on hold at between 5% to 5.25%, snapping a streak of 10 consecutive increases that lifted the benchmark to the highest since 2007. But the Fed lifted the upper-end of its near-term rate forecast, suggesting the central bank still feels tighter financial conditions were needed to combat the current elevated inflation.
In the Fed's summary of economic projections, also known as the dot plots, which indicates the prospective forecasts of voting and nonvoting members of the Federal Open Market Committee, the median view of the federal-funds rate by year's end was marked 0.5 point higher, at 5.6%, compared with the March release.
That suggests the potential for at least two more rate hikes between now and December, the Fed's last policy meeting of the year, although Powell would not confirm whether a decision for the July meeting had been made.
CME Group's FedWatch now suggests an 81.8% chance that the Fed will lift rates by 25 basis points (0.25 percentage point), to between 5.25% and 5.5% at its next policy meeting in July, although bets on a follow-on hike in September are only pegged at around 18%.
