“If — and I stress that no decision has been made on this — but if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell told the U.S. of Representatives Financial Services Committee in testimony that added a cautionary clause to the otherwise identical message he delivered to a Senate committee on Tuesday.
He emphasized the point again in response to a question explicitly about the expected outcome of the March 21-22 meeting from Representative Patrick McHenry, the Republican chair of the committee.
“We have not made any decision,” Powell said, but will be looking closely at upcoming jobs data on Friday and inflation data next week in deciding whether rate hikes need to shift back into a higher gear.
Recent inflation data was worse than expected, and revisions to prior months showed the Fed had made less progress than expected in returning inflation to its 2% target from current levels that are more than double that.
As Powell delivered his opening remarks, new job openings data showed little progress on one measure the Fed has focused upon, with employers still holding 1.9 jobs open for each unemployed person, well above pre-pandemic norms.
At the margins, however, some of the data did move in ways consistent with the softer job market the Fed hopes will develop. Overall job openings dropped slightly. The rate at which workers were quitting continued a gradual decline, a sign some of the pandemic job-hopping had slowed, while the layoffs right increased.
Powell’s message to Congress this week has reset expectations of where the Fed is heading, with his blunt assessment that “the ultimate level of interest rates is likely to be higher than previously anticipated” because inflation is not falling as fast as it seemed to be just a few weeks ago.
Along with what rate futures markets now expect to be a half-percentage-point rate hike at the upcoming Fed meeting, policymakers will update projections on how high rates will ultimately need to be increased in order to squelch inflation. In their last set of projections, in mid-December, the median estimate of the high point of the Fed’s benchmark overnight interest rate was between 5.00% and 5.25%, versus the current 4.50%-4.75% range.
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