Head of Central Bank: US Economy Moves Faster Than Expected

Chairman of the Federal Reserve or Central Bank of the United States, Jerome Powell, on Tuesday (7/3), said the US economy was progressing faster than expected. This could prompt central bank policy makers to raise interest rates at a faster pace than planned to curb spending and lending. The increase in the interest rate is expected to curb the ongoing increase in consumer prices.

Policy makers at the central bank have signaled their intention to raise the benchmark interest rate by 0.25 percent at the upcoming meeting and for the next few months.

But Powell told the Senate Banking Committee that the increase may not be enough to curb the US inflation rate, which rose 6.4 percent for the 12 months ending in January. The increase is three times faster than the 2 percent pace that the Central Bank considers normal.

“The latest economic data came out stronger than expected, which suggests that the final interest rate will likely be higher than previously anticipated,” Powell said. “If the totality of the data indicates that more rapid tightening is needed, we will be prepared to increase the pace of rate hikes.”

The Fed raised its benchmark interest rate, which affects the cost of borrowing for businesses and consumers, by 0.25 percent to a range between 4.5 percent and 4.75 percent last month, paring the pace of rate hikes following a half percentage point increase in December. and 0.75 percent in November.

The Fed had projected raising interest rates to between 5 percent and 5.5 percent and keeping them on hold through 2024, but faster economic growth could change that plan and prompt policymakers to raise interest rates even higher.

“We’re going to continue to make decisions at every meeting,” Powell said. “Although inflation has fallen in recent months, the process of bringing inflation down to 2 percent is still a long way off and is unlikely to be easy.” [my/jm]