Federal Reserve Chair Jerome Powell signaled policymakers could potentially raise interest rates in July and September to curb persistent price pressures and cool a surprisingly resilient U.S. labor market.
Asked whether Fed officials now anticipate they will raise rates every other meeting after skipping a hike this month, Powell said that may or may not happen and that he wouldn’t rule out consecutive rate hikes. He reiterated that most policymakers’ forecasts show they expect to hike at least two more times this year.
“Although policy is restrictive it may not be restrictive enough and it has not been restrictive for long enough,” Powell said Wednesday during a panel hosted by the European Central Bank for a forum in Sintra, Portugal.
The Fed chief spoke two weeks after he and his colleagues left interest rates steady after 15 months of increases to allow more time to evaluate how higher borrowing costs and recent banking strains are hitting the economy.
But Powell and most of his colleagues are signaling more tightening will ultimately be needed to rein in an inflation rate running twice as high as the Fed’s 2% target. Median projections released at this month’s meeting showed Fed officials expect their benchmark rate to rise by another half point this year from the current range of 5% to 5.25%.
A flurry of data released Tuesday pointed to a U.S. economy that is exceeding expectations and proving resilient to the Fed’s tightening campaign. Reports showed that sales of new homes climbed to the fastest pace in over a year, durable goods orders topped estimates and consumer confidence hit the highest level since the start of 2022.
The Fed’s message is in line with the message coming from central bankers in Europe and elsewhere that further rate increases may be needed if underlying inflationary pressures persist. ECB Governing Council member Bostjan Vasle said Tuesday interest-rate hikes will need to continue if inflation proves to be more stubborn than is currently expected.
“If inflation will turn out to be more persistent than we believe at the moment, of course further action in terms of interest rates and also other fields will be needed,” Vasle said. “Let’s wait and see what will happen during the summer months and then have a new decision in September.”
