The US Central Bank May Raise Interest Rates Again If Inflation Remains High

Washington, DC (AP) —

Bank of America Governor Jerome Powell, testifying before a Senate panel on Tuesday (7/3) said he could increase the size of the rate hike and raise borrowing costs to higher-than-projected levels, if there is continued evidence of strength. economy and high inflation.

“The latest economic data came in stronger than expected, which suggests that interest rates will likely be higher than previously anticipated,” Powell said in testimony to the Senate Banking Committee.

“If the overall data indicates a need for more rapid tightening then we will be prepared to increase the pace of rate hikes,” he added.

Powerll’s statement raised the possibility that the Central Bank will raise its main interest rate by half a percentage point in its next meeting March 21-22, after making a quarter-point increase in early February.

The Central Bank had previously raised its benchmark interest rate by half a point in December, and enacted four of the previous three-quarter-point hikes.

Over the past year, the Bank of America has raised key interest rates eight times, affecting many consumer and business loans.

Most economists and investors on Wall Street expect the Central Bank to raise another quarter point at its upcoming meeting. In recent days, however, traders in the futures market have been pricing in a larger half-point gain.

Powell acknowledged inflation “has moderated in recent months,” but added that “the process of bringing inflation down to 2 percent is still a long way off and will likely be bumpy.”

Some Federal Reserve officials last week said they would support a key rate hike above the 5.1% projected last December, if growth and inflation remained high.

When the Central Bank raises its main interest rate, it usually makes mortgages, car loans, credit card and business loans more expensive. This is a trend that could slow spending and inflation, but also risks sending the economy into recession.

Inflation, which is measured year-over-year, has slowed from its June 2022 peak of 9.1%. Now the inflation rate in America is 6.4%.

But this progress stalled in January. The measure of price increases the Central Bank expects rose from December to January, the highest in seven months.

Powell noted that so far most of the slowdown in inflation reflects the breakdown of supply chains that allow more furniture, clothing, semiconductors and other physical goods to reach the American region. In contrast, inflationary pressures remain entrenched in various areas of the economy’s broad service sector. [em/jm]