The US Federal Reserve expects to keep raising interest rates, but at a slower pace, Fed Chairman Jerome Powell told a congressional hearing on Wednesday.
“Given how far we’ve come, it may make sense to move rates higher, but to do so at a more moderate pace,” Powell told the US House of Representatives Committee on Financial Services.
Asian shares were trading mixed yesterday following a retreat on Wall Street after Powell made comments that indicated inflation still is not under control.
Photo: Bloomberg
Japan’s benchmark Nikkei 225 fell 0.9 percent to close at 33,264.88. Australia’s S&P/ASX 200 declined 1.6 percent to 7,195.50. South Korea’s KOSPI gained 0.4 percent to 2,593.70.
Trading was closed in Taipei, Hong Kong and Shanghai for the Dragon Boat Festival, while shares rose in India.
Last week, the Federal Open Market Committee (FOMC) paused its aggressive campaign against inflation after 10 consecutive interest rate hikes, so as to give policymakers more time to assess the strength of the US economy.
“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell said on Wednesday.
The Fed has already raised its benchmark lending rate by 5 percentage points since March last year, from close to zero to a range between 5 and 5.25 percent.
Despite these aggressive moves, inflation remains well above the Fed’s long-run target of 2 percent.
“We have quite a ways to go, but we’re making progress,” Powell said. “Inflation has consistently surprised us — and essentially all other forecasters — by being more persistent than expected.”
Wednesday’s hearing was the first of two called on Capitol Hill to discuss the Fed’s semiannual report on monetary policy. Powell’s congressional appearances give policymakers a chance to discuss bank policy at a time of high interest rates and slower economic growth.
The Fed published updated economic forecasts alongside its interest rate decision on Wednesday last week. These suggested that another half percentage-point of increases might be needed this year.
“Sixteen of the 18 participants on the FOMC wrote down that they do believe it’ll be appropriate to raise rates, and a big majority” believe the Fed will need to raise rates twice more this year, Powell told lawmakers. “I think that’s a pretty good guess of what will happen if the economy performs about as expected.”
Chicago Fed President Austan Goolsbee — who is a voting FOMC member — backed a pause at last week’s meeting.
“For me, it still was a close call,” he said during a live event hosted by the Wall Street Journal. “We’re still in this weird, foggy environment, where it’s hard to figure out where the road is, and I felt like a reconnaissance mission is [a] perfectly appropriate thing to do after you’ve had 10 raises in a row.”
Goolsbee said that the next few months should give policymakers a better indication of how the fight against inflation is going.
“We should be able to get readings ‘yay’ or ‘nay’ on the persistence of inflation,” he said, adding that he had not yet decided how he plans to vote during the FOMC’s next meeting on July 25 and 26.
Futures traders are assigning a close to 75 percent probability that the FOMC will vote to raise interest rates by a quarter percentage point, data from CME Group showed.
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