What’s Fed Chair Powell trying to tell us about future interest rate hikes?
What’s Fed Chair Powell trying to tell us about future interest rate hikes?
Wednesday was the first of two days of Federal Reserve Chairman Jerome Powell’s biannual testimony before Congress about monetary policy and the economy.
Until last week, when the Fed pressed the pause button, the central bank had hiked interest rates at 10 consecutive meetings — a remarkable show of hawkish force aimed at subduing inflation.
In Wednesday’s House testimony and his answers to follow-up questions, Powell largely stuck to the script he presented at last week’s meeting of Fed policymakers. So we wondered, what’s Powell trying to tell investors — and the rest of us in this economy — about what comes next?
Powell has put out two messages since last week’s meeting. One: We’re pausing to see whether past rate hikes have done enough to fight inflation. Two: We’re really serious about that inflation fight. We’ll do whatever it takes to win.
Frederic Mishkin, a former member of the Fed board of governors, sees no major contradiction there. Powell needs to be clear, Mishkin said — because he got inflation so wrong in 2021, when he called it transitory. And, of course, it was not.
“Once you actually make a mistake like that, it’s even more imperative to lean in the direction of being tough,” Mishkin said.
But not everyone sees consistency in Powell’s words. According to Dean Baker at the Center for Economic and Policy Research, there are two camps on the Fed: doves who think inflation’s coming down enough and hawks who believe inflation’s not vanquished yet.
Powell’s caught between them, Baker said. “Trying to maintain consensus that ‘OK, we’re going to hold, but we’re going to leave open the option that we may well have further hikes.’ So you get this kind of talking out of both sides of his mouth.”
Kinda confused? Investors are too, said Quincy Krosby at LPL Financial.
“The market is perplexed,” she said. “Where does Powell fit in this equation, in terms of the need to continue raising rates? And I think that’s why you’re confused, because he seems to meander into both monetary paths.”
Powell has been clear that the Fed will act based on the inflation data that comes in, Krosby added, and that the hard work of getting inflation under control is mostly done. That would mean slower and smaller rate hiking from now on.
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