The US central bank umbrella organization Federal Reserve may be able to raise interest rates even more strongly and faster than previously thought. President Jerome Powell said that in a statement to the US Congress.
According to Powell, the economic data for January were better than expected, and therefore an even higher interest rate to contain the high inflation may be justified.
Powell is in Congress on Tuesday and Wednesday to explain the central bank’s interest rate policy. He said that while inflation is moderating from last year’s peak, bringing inflation to the 2 percent target “will take a long time and will likely be bumpy.” This is because the Fed has been raising interest rates for some time to control inflation.
In January, inflation in the United States was higher than expected, and job growth was more substantial that month. As a result, the Fed may feel compelled to continue raising interest rates even more challenging to cool the economy and inflation. “If the aggregate of the data indicates that faster policy tightening is needed, then we are prepared to accelerate the pace of interest rate hikes,” Powell said. He said the Fed will continue with this until “the job is done.”
US interest rates are now in a range of 4.5 to 4.75 percent. There will be another Fed policy meeting later this month, where a new interest rate hike is expected. The financial markets had expected another quarter of a percentage point interest rate hike before that meeting, but now more investors believe in a firmer step up.
US inflation peaked at 9.1 percent annually in June last year, mainly driven by higher energy prices due to the war in Ukraine. In January, inflation in the world’s largest economy was 6.4 percent.