Jerome Powell: US central bank boss says he plans to raise rates

The Federal Reserve Chairman has indicated that he intends to press ahead with rate hikes this month.

Before Congress, Jerome Powell said he favors a 0.25 point hike to counter the rising cost of living.

The bank is under pressure to curb inflation as US prices rise at their fastest rate in 40 years.

Analysts expect a rate hike in March, the first since 2018.

The cost of food, fuel and cars have risen sharply in recent months, straining families’ budgets.

Mr Powell admitted he is open to further rate hikes down the road if inflation, which measures how quickly the cost of living is rising over time, stays “persistently high”.

The idea of ​​raising interest rates is to keep current and projected price increases under control.

Higher interest rates make borrowing more expensive, for example. For households, this could mean higher mortgage costs, although – for the vast majority of homeowners – the impact is not immediate and some will escape them entirely.

Many central banks, including the US Federal Reserve, aim to keep inflation at 2%.

Mr Powell acknowledged that the price hikes have gone well beyond that target. In January, the cost of living rose 7.5% year-on-year.

“The inflation we’re seeing is just not something we’ve seen in decades,” he said.

At the start of the pandemic, the Federal Reserve cut interest rates to zero to stimulate spending and the economy at a time when many sectors were shut down.

But a mixture of problems, such as B. high demand with easing of restrictions, labor shortages and supply chain problems, has led to an increase in the cost of goods in particular.

During his tenure, Federal Reserve Chairman Jerome Powell made it his mission to demystify what the Federal Reserve is doing. He is committed to explaining what policymakers are doing and why, given what happened during the 2008 financial crisis.

Even by those standards, he was unusually blunt during his biannual testimony before Congress.

Mr. Powell cables specifically what he intends to do at the next central bank meeting in two weeks: propose a quarter-point rate hike, tread carefully and monitor the economic fallout from the war in Ukraine.

Even before the Russian invasion, the Fed had a hard job trying to tame rising inflation. A number of interest rate hikes were already expected this year.

But the conflict in Ukraine has complicated this task. The invasion is likely to undermine global growth while pushing up prices, particularly for energy and food.

Amid the uncertainty, Mr. Powell believes a cautious approach is best and puts all his cards on the table.

Acknowledging that “high inflation imposes significant difficulties on people,” the chairman said the bank would use all its tools to ensure higher prices did not “lock in”.

The Fed is not alone in its plans to raise interest rates from their current levels. The Bank of England hiked interest rates twice in three months, sparking outrage when its boss told workers not to ask for a pay rise to try to stem a runaway rise in prices.

Looking ahead, Jerome Powell said the Fed expects inflation “to fall over the course of the year as supply constraints ease…we are alert to the risks of potential further upward pressure” on prices.

However, he warned that the invasion of Ukraine and the sanctions imposed by Western countries are creating great uncertainty regarding the prices of wheat, oil and other commodities.

“The near-term impact of the invasion of Ukraine, the ongoing war, sanctions and coming events on the US economy remains highly uncertain,” he said in his biannual testimony before Congress.

“We will monitor the situation closely.”

Oil prices rose again on Wednesday, even as the US and other members of the International Energy Agency agreed to release 60 million barrels of emergency stocks.

Russia is one of the world’s largest oil and gas exporters, but US President Biden has not ruled out an import ban from the country.