Jerome Powell Has Big News For America’s Fate

The effort to bring inflation back down to the Fed’s 2% objective “has a long way to go,” Fed Chair Jerome Powell said in prepared testimony he delivered to the House Financial Services Committee on Wednesday.

Inflation has lowered somewhat since June of 2022, with the Fed’s favored gauge of inflation falling significantly from a peak of about 7% last year to 4.4% as of April.

Yet, there has been a slight development recently.

According to Powell, inflation pressures continue to run high, even though the Federal Open Market Committee decided not to raise interest rates at last week’s meeting. Nearly all participants still believe it is appropriate to raise rates again before the end of the year.

While most market participants anticipate the Fed to continue hiking rates at their July meeting, there is some skepticism that the central bank will do so.

Powell was scheduled to tell the House committee, where Republicans have the majority, that he and his colleagues understand the hardships that high inflation is causing, and they remain committed to bringing inflation back down to the 2% goal.

This week, the first of two sessions will begin at 10 a.m. (1400 GMT) as part of his twice-yearly reports to federal legislators. On Thursday, Powell will testify before the Senate Banking Committee.

The real impact of quick Fed rate rises likely has not been felt by the economy, but Powell outlined the contours of a discussion that has policymakers balancing the strength of the U.S. labor market and sustaining “modest” economic growth.

According to Powell, the housing market is one of the industries feeling the effects of the Fed’s “policy tightening” on demand.

However, as Powell pointed out, the full effects of monetary restraint will take time to be realized, especially on inflation. This makes it difficult for policymakers to determine whether they have already increased interest rates enough to reach the inflation target or whether they need to restrain the economy even further.

Powell also said that “headwinds” are being created by banking sector stress, the impact of which is yet unclear for families and companies.

Powell explained that the Fed’s decision not to raise rates last week was “prudent” because it would allow the Committee to assess additional information and its implications for monetary policy in light of the rapid five percentage point rate hikes the Fed had approved since March of 2022.