Federal Reserve Chairman Jerome H. Powell said Thursday he expected the slow pace of rate hikes to continue after central bankers declined to raise interest rates for the first time in 11 policy meetings in June — but they didn’t. Did. Don’t rule out that officials may return to back-to-back rate moves.
“It may be that we do not proceed to a meeting, and then proceed to a meeting,” Mr. Powell said.
Speaking at a conference in Madrid, he reiterated his claim a day earlier that he would not take a rate hike “off the table” at successive meetings in the future. But he also said he expected a more patient approach to continue.
“We had a meeting where we didn’t move forward, so it’s kind of a restraint of motion,” he explained. “So I would expect something like this to continue, assuming the economy continues to grow as expected.”
However, Mr Powell said the economy has “a tendency to do something different” than policymakers expected.
Fed officials hike interest rates sharply in 2022, making a three-quarter-digit series increases. They slowed to half a point at the end of last year and are gradually moving to smaller and now more intermittent adjustments.
Raising interest rates is like putting the brakes on economic growth: It slows consumer and business demand to reduce inflation. Picking up speed more slowly is the same as tapping the brake pedal less firmly. Fed officials are still bracing for a slowing economy, but they are trying to avoid an unnecessarily harrowing pause.
For now, the Fed’s central bankers expect they will raise their policy rate twice in 2023, from a little above 5 percent to a little above 5.5 percent. If these moves happen at the pace of every other meeting, it could mean rate hikes at the central bank’s meetings in July and November.
But significant uncertainty clouds that forecast. Investors are keeping the prospect of two more rate hikes by the end of the year low – though growing. They’re betting that it’s more likely the Fed will make only one more rate hike in 2023, as the economy slows and inflation cools.
Mr. Powell said the Fed has repeatedly been wrong in the other direction, over-estimating how fast prices will rise.
“We have all seen inflation time and time again – which is more persistent and stronger than we expected,” he said.
He later said, “A 5 percent interest rate was unimaginable before the pandemic.” “And now the question is, is that tough policy enough?”