Federal Reserve Chairman Jerome H. Powell said on Thursday that the pace of rate hikes will continue at a gradual pace after the central bank ruled out a rate hike in June for the first time in 11 policy meetings. But he ruled out the possibility of a return to rapid rate swings for officials who didn’t.
“Maybe we don’t travel for meetings, we travel for meetings,” Mr. Powell said.
At the Madrid meeting, he reiterated his insistence the day before that future rate hikes at successive meetings would not be “out of consideration”. But he added that he expects a more patient approach to follow.
“There was one meeting where we didn’t move, which kind of slowed the pace,” he explained. “Thus, assuming the economy develops more or less as expected, we expect a similar situation to continue.”
But Mr. Powell said the economy “tends to do something different” than policymakers expected.
Fed Officials Raise Rates Rapidly in 2022, Hitting Consecutive 3/4 Points increases. It slowed to a half-point move at the end of last year, gradually narrowed, and is now heading for a more intermittent correction.
Higher interest rates put the brakes on economic growth, slowing consumer and business demand to keep inflation under control. Gradually increasing the lift rate is the same as not pressing the brake pedal too hard. Fed officials are still slowing the economy, but are trying to avoid unnecessary shutdowns.
For now, Fed central bank officials expect two more rate hikes in 2023, from just over 5% to just over 5.5%. If these moves happen on a meeting-to-meeting pace, a rate hike could occur at the July and November central bank meetings.
But significant uncertainties cloud the forecast. Investors expect two more rate hikes by the end of the year are unlikely, but they are on the rise. They bet that the Fed will likely raise rates one more time in 2023 as the economy slows and inflation cools.
Mr. Powell said the Fed has repeatedly made mistakes in other directions, including overestimating how quickly inflation will slow down.
“We’ve all seen time and time again that inflation has been shown to be more persistent and stronger than expected,” he said.
“Before the pandemic, it was unthinkable to have an interest rate of 5%,” he later added. “So the question is, is the policy strict enough?”