pcloudyn.png
Friday July 1st, 2022 1:00AM

Powell: Fed will decide on rate hikes 'meeting by meeting'

By The Associated Press
Related Articles
  Contact Editor

WASHINGTON (AP) — Federal Reserve Chair Jerome Powell on Wednesday underscored the Fed's determination to raise interest rates high enough to slow inflation, a commitment that has fanned concerns that the central bank's fight against surging prices could tip the economy into recession.

Powell also said the pace of future rate hikes will depend on whether — and how quickly — inflation starts to decline, something the Fed will assess on a “meeting by meeting” basis.

Its decision-making will be based on “the incoming data and the evolving outlook for the economy,” Powell said to the Senate Banking Committee, which he is addressing as part of the Fed's semiannual policy report to Congress.

The Fed's accelerating pace of rate increases — it started with a quarter-point hike in its key short-term rate in March, then a half-point increase in May, then three-quarters of a point last week — has alarmed investors and led to sharp declines in the financial markets.

Powell's testimony Wednesday comes exactly a week after the Fed announced its three-quarters-of-a-point increase, its biggest hike in nearly three decades, to a range of 1.5% to 1.75%. With inflation at a 40-year high, the Fed's policymakers also forecast a more accelerated pace of rate hikes this year and next than they had predicted three months ago, with its key rate reaching 3.8% by the end of 2023. That would be its highest level in 15 years.

Concerns are growing that the Fed will end up tightening credit so much as to cause a recession. This week, Goldman Sachs estimated the likelihood of a recession at 30% over the next year and at 48% over the next two years.

A senior Republican on the Banking Committee, Sen. Thom Tillis of North Carolina, on Wednesday accused Powell of having taken too long to raise rates, saying the Fed’s hikes “are long overdue” and that its benchmark short-term rate should go much higher.

“The Fed has largely boxed itself into a menu of purely reactive policy measures,” Tillis said.

Tillis, like many Republicans, also blamed President Joe Biden’s $1.9 trillion financial stimulus package, approved in March 2021, for being excessively large and exacerbating inflation. Many economists agree that the additional spending contributed to rising prices by magnifying demand even while supply chains were snarled by COVID-related shutdowns and labor shortages were driving up wages. Inflation pressures were further worsened by Russia's invasion of Ukraine.

Biden is expected on Wednesday to call on Congress to suspend U.S. gas and diesel taxes to reduce the sting of high fuel prices, which are averaging nearly $5 a gallon. Many economists are skeptical that consumers will see the full benefit of a tax holiday on the 18.4 cent per gallon gas tax.

Inflation has emerged as a leading concern of voters in the months before Congress’ midterm elections, weakening Biden’s approval ratings and raising the likelihood of Democratic losses in November. While taking some steps to try to ease the burden of inflation, the president has stressed his belief that the ability to curb inflation rests mainly with the Fed.

At Wednesday's hearing, Sen. Elizabeth Warren, a Democrat from Massachusetts, challenged Powell's rate hike plans and asked whether they would reduce gas or food prices, some of the highest-profile drivers of inflation. Powell acknowledged that they wouldn't.

Warren said that Biden's efforts to fight inflation, such as trying to clear clogged supply chains and increasing the use of antitrust rules to break up monopolies, would more effectively fight higher prices.

Fed rate hikes, though, can only slow demand, which will raise unemployment and weaken growth, Warren said.

“You know what’s worse than high inflation with low unemployment?” she asked. "High inflation and a recession with millions of people out of work.”

“I hope you consider that before you drive the U.S. economy off a cliff," Warren added.

At a news conference last week, Powell suggested that a rate hike of either one-half or three-quarters of a point will be considered at the Fed’s next meeting in late July. Either one would exceed the quarter-point Fed hikes that have been typical in the past, and they reflect the central bank’s struggle to curb high inflation as quickly as possible.

Anticipating additional large rate hikes ahead, investors have sent Treasury yields sharply higher, making borrowing costs for home purchases, in particular, more expensive. With the average 30-year fixed mortgage rate up to roughly 5.8% — nearly twice the rate just a year ago — home sales have weakened. Credit card users and auto are also being hit with higher borrowing costs.

Fed officials hope that such changes will help achieve their goals of cooling demand enough to slow the economy and moderate price increases. In his testimony, Powell said the higher interest rates “should continue to temper growth and help bring demand into better balance with supply.”

The Fed’s aggressive pace of rate hikes has intensified fear that it will overly stifle business and consumer borrowing. But in projections they issued last week, Fed officials forecast that while the economy will slow sharply this year and next, it will continue to grow. They also projected, though, that the unemployment rate will rise a half-percentage point by 2024, an increase that economists say could lead to a recession.

Powell reiterated his view Wednesday that the U.S. economy “is very strong and well-positioned” to withstand higher rates. Yet with inflation causing hardships for millions of American households, he has stressed that moderating price spikes by raising rates is the Fed’s top priority.

On Wednesday, the Fed chair said the central bank’s policymakers “will be looking for compelling evidence that inflation is moving down” over the coming months before they would ease their pace of rate hikes. In a policy report to Congress it submitted late last week, the Fed said its commitment to fighting inflation is “unconditional.”

For now, most analysts expect a second three-quarter-point rate hike late next month and at least a half-point rate increase when the Fed meets again in September.

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP Online Headlines - Washington, AP Online Congress News, AP Business, AP Business - Economy, AP Business - Industries, AP Business - Financial Services
© Copyright 2022 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
EXPLAINER: Why is Israel always holding elections?
The leaders of Israel’s broad-based but severely weakened coalition government have thrown in the towel this week, after barely 12 months in office
9:48AM ( 15 minutes ago )
Stocks slip as falling oil prices weigh on energy sector
Stocks are opening lower on Wall Street as sharp drops in crude oil prices pull energy companies lower
9:46AM ( 16 minutes ago )
Powell: Fed will decide on rate hikes 'meeting by meeting'
Federal Reserve Chair Jerome Powell underscored the Fed’s determination to raise interest rates high enough to slow inflation, a commitment that has fanned concerns that the central bank’s fight against surging prices could tip the economy into recession
9:33AM ( 29 minutes ago )
Associated Press (AP)
US futures point lower ahead of Powell testimony to congress
U.S. markets were poised to open lower ahead of congressional testimony by Federal Reserve Chair Jerome Powell, who is expected to address the central bank’s response to the persistent inflation that has thrown global markets into turmoil
8:16AM ( 1 hour ago )
Wisconsin GOP lawmakers set to end session on abortion ban
Republican legislators in Wisconsin are expected to meet but quickly adjourn a special session that Democratic Gov. Tony Evers called to repeal the state's dormant abortion ban without taking any action
8:12AM ( 1 hour ago )
South Dakota AG convicted on 2 impeachment charges, removed
The South Dakota Senate convicted Attorney General Jason Ravnsborg of two impeachment charges stemming from a 2020 fatal accident, removing and barring him from future office
7:02AM ( 3 hours ago )
AP Online Headlines - Washington
Senators reach bipartisan compromise on gun violence bill
Senate bargainers have reached agreement on a bipartisan gun violence bill
10:06PM ( 11 hours ago )
Texas top cop: Uvalde police could've ended rampage early on
The head of the Texas Department of Public Safety says three minutes after a gunman entered a school where he slaughtered 19 elementary students and two teachers there was sufficient armed law enforcement on scene to stop the gunman
9:40PM ( 12 hours ago )
Election 2022: Britt beats Brooks in Alabama Senate runoff
Katie Britt has won the Republican nomination for Senate in Alabama, defeating six-term Congressman Mo Brooks in a primary runoff after former President Donald Trump endorsed and then un-endorsed him
9:32PM ( 12 hours ago )
AP Online Congress News
Saudi crown prince visits Turkey as countries normalize ties
Saudi Crown Prince Mohammed bin Salman is set to make his first visit to Turkey following the slaying of Saudi columnist Jamal Khashoggi in Istanbul
8:46AM ( 1 hour ago )
Dutch farmers clog roads on way to anti-government protest
Thousands of farmers are gathering in the central Netherlands to protest against the Dutch government’s plans to rein in emissions of nitrogen oxide and ammonia
6:41AM ( 3 hours ago )
Europe wildfire risk heightened by early heat waves, drought
Extended drought conditions in several Mediterranean countries, a heat wave last week that reached northern Germany and high fuel costs for aircraft needed to fight wildfires have heightened concerns across Europe this summer
4:34AM ( 5 hours ago )
AP Business
Biden, Chevron chief trade sharp words over gas prices
In a pointed back and forth, the head of Chevron has complained that President Joe Biden has vilified energy firms at a time when gasoline prices are at near record levels and the president responded that the oil company CEO was being “mildly sensitive.”
5:59PM ( 16 hours ago )
Fed's Powell facing rising criticism for inflation missteps
Federal Reserve Chair Jerome Powell won praise for his deft leadership during the maelstrom of the pandemic recession
5:06PM ( 16 hours ago )
Leftist's election to test Colombia's alliance with US
It’s one of the United States’ few enduring alliances in an often-turbulent Latin America, one built around a decades-long partnership combating the nation’s drug cartels
4:40PM ( 17 hours ago )
AP Business - Economy
Supreme Court rejects Bayer's bid to stop Roundup lawsuits
The Supreme Court has rejected Bayer’s appeal to shut down thousands of lawsuits claiming its Roundup weedkiller causes cancer
12:07PM ( 21 hours ago )
Wall Street futures gain after holiday, global shares rise
U.S. markets were poised to open sharply higher Tuesday after a U.S. market holiday gave investors an extra day to digest another dreadful week
8:22AM ( 1 day ago )
EXPLAINER: What's next after Russia reduced gas to Europe?
The war in Ukraine is fueling fears of a natural gas emergency in Europe
8:14AM ( 1 day ago )
AP Business - Industries
World shares mixed; bitcoin holds steady near $20,000
European benchmarks are higher after most Asian markets retreated, while the price of bitcoin hovered near $20,000
5:36AM ( 2 days ago )
Asian markets mostly lower; bitcoin steady at $20,000
Asian markets are mostly lower in cautious trading, while the price of bitcoin remained near $20,000
3:24AM ( 2 days ago )
Asian markets mostly lower ahead of US holiday
Asian markets are mostly lower in cautious trading ahead of a federal holiday in the U.S. Worries over inflation and risks of a global recession from central bank efforts to bring it under control appeared to outweigh Wall Street's positive close on Friday
1:14AM ( 2 days ago )
AP Business - Financial Services
Stocks slip as falling oil prices weigh on energy sector
Stocks are opening lower on Wall Street as sharp drops in crude oil prices pull energy companies lower
9:46AM ( 19 minutes ago )
UK plans to rewrite human rights law; critics cry foul
The British government has unveiled plans for a Bill of Rights it says will strengthen free speech and the power of Parliament
9:24AM ( 41 minutes ago )
Sri Lanka PM says economy 'has collapsed,' unable to buy oil
Sri Lanka’s prime minister says its debt-laden economy has “collapsed" after months of shortages of food, fuel and electricity
9:14AM ( 52 minutes ago )
Greece: Stranded on tiny island, migrant mother gives birth
Authorities in Greece say a woman from Eritrea has given birth on an uninhabited rocky islet after traveling with other migrants from nearby Turkey
9:08AM ( 57 minutes ago )
Climate change a factor in 'unprecedented' South Asia floods
Scientists say climate change is a factor behind the devastating floods in Bangladesh and northeastern India
9:06AM ( 59 minutes ago )