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Author Topic: The FED is set to hike interest rates higher than previously anticipated.  (Read 853 times)

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Federal Reserve Chairman Jerome Powell has cautioned that interest rates are likely to rise higher than expected in the coming months as the central bank looks to slow down a growing economy. The warning came as Powell addressed the Senate Banking Committee, where he highlighted that the current trend shows that the Fed’s inflation-fighting job is not over. Inflation, as gauged by personal consumption expenditures prices, was still running at a 5.4% pace annually in January, well above the Fed’s 2% long-run target.

Powell indicated that the Fed is ready to take action to keep inflation under control. If the data were to indicate that faster tightening is warranted, the Fed would be prepared to increase the pace of rate hikes. However, Powell also noted that the current policy stance remains appropriate and that the Fed is committed to achieving maximum employment and price stability.

Powell also noted that while there has been some progress on inflation in areas such as housing, there is little sign of disinflation when it comes to the important category of services spending excluding housing, food, and energy. This suggests that there may be more inflationary pressures in the economy than previously thought.

The Fed has been gradually raising interest rates since 2015 in an effort to keep inflation in check and ensure sustainable economic growth. However, the pace of rate hikes has been slow, with the Fed only raising rates a total of four times since December 2015. Powell’s warning suggests that the Fed may be looking to accelerate the pace of rate hikes to address inflationary pressures in the economy.

Higher interest rates can have a variety of effects on the economy. They can help to control inflation by making borrowing more expensive, thereby reducing spending and demand. However, higher interest rates can also slow economic growth by reducing investment and consumer spending. As such, the Fed will need to carefully balance its desire to control inflation with its mandate to support maximum employment and price stability.

In summary, Powell’s warning of higher interest rates suggests that the Fed is ready to take action to address inflationary pressures in the economy. However, the Fed will need to carefully balance its desire to control inflation with its mandate to support maximum employment and price stability.



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