Fed Chair Powell says interest rates are ‘likely to be higher’ than previously expected

Federal Reserve Chairman Jerome Powell stressed on Tuesday that central bank policymakers are prepared to raise interest rates higher than previously expected and pick up the pace of increases in the face of hotter-than-expected economic data.

"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," Powell said in remarks prepared for delivery before the Senate Banking Committee. "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."

Central bankers are in the midst of the most aggressive campaign since the 1980s to crush persistently high inflation. Although the consumer price index has slowly fallen from a high of 9.1% notched in June, it remains about three times higher than the pre-pandemic average. 

FED SIGNALS MORE INTEREST RATE HIKES NEEDED TO FIGHT STICKY INFLATION

Officials voted in February to raise the benchmark interest rate a quarter percentage point to a range of 4.5% to 4.75% and signaled that a "couple more" increases are on the table this year. That followed a half-point increase at their December meeting and four consecutive 75-basis-point moves before that.

The Fed's rate-setting committee meets later this month.

Markets widely expect the Fed to continue raising rates at a quarter-point pace, but a slew of hotter-than-expected economic data reports in recent weeks — including the blowout January jobs report and disappointing inflation data that pointed to the pervasiveness of high consumer prices — has raised the specter of a higher peak rate or steeper increases.

The Labor Department reported in February that the consumer price index rose 0.5% in January, the most in three months. The annual inflation rate also surprised to the upside at 6.4%.

"We will continue to make our decisions meeting by meeting," Powell said on Tuesday. "Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy."

INFLATION STILL OUTSTRIPPING WAGES IN MOST US CITIES

That data has prompted some traders to reexamine their rate hike expectations for the year, with a growing number of investors now betting the Fed could raise rates higher than previously projected and return to larger-than-usual rate hikes. About 50% of traders expect the Fed to increase the federal funds rate by 50 basis points during their March 21-22 meeting, while the other half expect rates to increase by 25 basis points, according to data from the CME Group's FedWatch Tool.

Other Fed officials have acknowledged that rates may need to go higher than expected and remain elevated for longer amid signs that inflationary pressures within the economy remain strong.

CLICK HERE TO READ MORE ON FOX BUSINESS

"I want to be completely clear: There is a case to be made that we need to go higher," Atlanta Fed President Raphael Bostic told reporters Thursday. "Jobs have come in stronger than we expected. Inflation is remaining stubborn at elevated levels. Consumer spending is strong. Labor markets remain quite tight."