Powell: More Interest Rate Hikes on the Way

Powell estimates that additional interest rate hikes are on the way, possibly in succession

Federal Reserve Chair Jerome Powell said at a forum organized by the European Central Bank that he expects further interest rate increases, and possibly even aggressive ones. In doing so, he reiterated the position of his colleagues at the bank at their June meeting, during which they indicated the likelihood of another half-point increase by the end of 2023.

The Fed has chosen to raise interest rates at every meeting since March 2022, including four consecutive three-quarter-point moves, before taking a pause in June. Therefore, and in light of his estimates today, the market assumed a quarter-point increase at the meeting, that is, two more increases. While in what he said in the past Powell hinted that the increases would come at back-to-back meetings, today he reiterated that this is not necessary and depends on the data that come in.

Powell made the statements at a meeting of leading central bankers organized by the European Central Bank (ECB) in Sintra, Portugal. The panel included not only Powell but also other important global players, including Bank of England Governor Andrew Bailey, European Central Bank President Christine Lagarde and Bank of Japan Governor Kazuo Ueda.

Powell reiterated that while inflation was moving in the right direction in the US, the Fed had a "long way to go" to achieve its 2% inflation target. In May, the consumer price index recorded an inflation rate of 4%, the slowest rate of growth since March 2021. But still double what the Fed would like to see.

Asked about banking pressures, Powell said that the events of March that led to the closure of one bank and two other institutions affected the Fed's actions. Although Powell has repeatedly emphasized that he considers the general condition of the US banking industry to be stable and sound, he said the Fed must be aware that there may be problems with credit availability, tightening standards and declining loan demand.

ECB President Christine Lagarde joined Powell in saying that "we are likely to raise [interest rates in July] again in July." Bank of Japan Governor Kazuo Ueda said his institution could tighten an especially loose policy if inflation does not decline, while Bank of England Governor Andrew Bailey stressed the importance of bringing prices down and said he would not consider raising the inflation target. "It will take some time. Inflation has proven to be more stubborn than we expected, and nothing less," Powell said.