The Federal Open Market Committee paused interest rate hikes last week for the first time in more than a year, but that doesn’t mean more hikes won’t be coming this year.
Earlier this week, Jerome Powell, the chairman of the Federal Reserve, said interest rate increases are likely to occur in the rest of 2023 until solid progress happens on bringing inflation down.
Appearing on Wednesday in front of the House Financial Services Committee, Powell gave prepared remarks that said the FOMC also agrees that interest rates would need to be increased through at least the end of 2023 in their fight against inflation.
As Powell said in the remarks:
“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year. But, at last week’s meeting, considering how far and how fast we have moved, we judged it prudent to hold the target range steady to allow the committee to assess additional information and its implications for monetary policy.”
“The economy is facing headwinds,” Powell continued, because of “tighter credit conditions for households and businesses.” Because of all of this, they are “likely to weigh on economic activity, hiring and inflation,” adding the “extent of these effects remains uncertain.”
The statements that Powell made comes at a time when unemployment rates have been on the rise, hitting 3.7% last month. At the same time, inflation is still “well above” the Fed’s 2% goal.
Bloomberg reported recently that to combat this, the Fed is expected to bump interest rates to as high as 5.6% by the end of 2023. Right now, the benchmark range sits between 5% and 5.25%.
Powell said that the FOMC will take a “meeting by meeting” approach to how interest rate hikes should be handled.
As he explained:
“My colleagues and I understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2% goal. We will continue to make our decisions meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks.”
The United States hasn’t seen inflation rise to the levels that it has over the last two years in more than four decades. The Fed has responded to this by increasing interest rates continually over the last 15 months, trying to stamp down prices so that Americans can afford everyday life.
Since last year, inflation has “moderated,” Powell said. However, there’s still “a long way to go” in getting inflation back below the 2% goal that the Fed sets as its benchmark.
As he said this week:
“We understand that our actions affect communities, families and businesses across the country. Everything we do is in service to our public mission.”
With interest rates set to continue to climb throughout 2023, life in the U.S. is going to continue to be affected in multiple ways.