Jerome H. Powell, the chair of the Federal Reserve, told House lawmakers that the United States remains a “long way” away from low and stable inflation even 15 months into the central bank’s campaign to cool the economy and wrestle down rapid price increases.
Mr. Powell is testifying before the House Financial Services Committee. He told lawmakers that the labor market remains very tight and that inflation — while it has come down notably from its peak last summer — is still too fast. In light of that, the Fed could raise interest rates even higher than their current level of just above 5 percent.
“Inflation has moderated somewhat since the middle of last year,” Mr. Powell said, speaking from prepared remarks. “Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go.”
Fed officials left interest rates unchanged last week following 10 straight increases. But central bankers have been adamant that the decision to hit pause did not amount to a declaration of victory over inflation. Instead, moving more gradually will give policymakers time to assess how well higher rates are working to slow the economy as they try to strike a delicate balance of doing enough to cool growth without doing too much.
“Considering how far and how fast we have moved, we judged it prudent to hold the target range steady,” Mr. Powell said. Still, he added that “nearly all” voting Fed officials “expect that it will be appropriate to raise interest rates somewhat further by the end of the year.”
Central bankers forecast in their fresh economic projections last week that they will probably raise interest rates to around 5.6 percent this year, which would amount to two more quarter-point rate increases. Mr. Powell said during his news conference following the decision last week that the Fed’s July 25-26 meeting will be “live,” meaning that a rate increase is possible at that gathering.
Investors only expect the Fed to make one more rate increase before holding them steady through the rest of the year, based on market pricing, though significant uncertainty remains around that forecast — markets place some odds on higher rates, and some odds on a rate cut before the end of 2023.
The Fed will need to assess how much the economy is slowing, and whether that is likely to be enough to return inflation to their 2 percent goal over time. Overall growth and the housing market have cooled since 2021, but consumption and even home prices have shown recent signs of renewed strength and hiring has remained rapid.
“We have been seeing the effects of our policy tightening on demand in the most interest rate–sensitive sectors of the economy,” Mr. Powell said. “It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation.”
