Raising borrowing costs is one mechanism to slow price increases in the wider economy.
“The latest economic statistics have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Mr. Powell said in Congress on the first of two days of testimony on the economy.
He continued, “We would be ready to raise the pace of rate hikes if the sum of the data were to indicate that faster tightening is needed.
The remarks drew some criticism from parliamentarians, particularly those on the left.
They said that the actions would result in an economic downturn that would put millions of people out of work while doing little to address the sources of the inflation problem, such as the conflict in the Ukraine and supply chain problems.
Senator Elizabeth Warren, a Democrat from Massachusetts, said, “You are playing with people’s lives.” She also attributed the inflation issue on price-gouging by businesses.
If the bank did nothing, according to Mr. Powell, the economy would be in far worse trouble.
The surprise 0.5% increase in US prices from December to January was accompanied by stronger-than-anticipated monthly statistics on retail sales and hiring.
Officials of the Federal Reserve intend to chill the economy and relieve pressures driving up prices by increasing borrowing costs in an effort to decrease demand for loans for homes, business expansions, and other purchases.
The actions have already precipitated significant slowdowns in the housing market and other rate-sensitive sectors of the economy.
Mr. Powell stated that officials will carefully review incoming data before making a decision.
According to Andrew Hunter, deputy chief US economist for Capital Economics, “the result is that not only are interest rates set to rise higher than we previously anticipated, but there is a lot less scope for rate cuts later this year than we had originally thought.” Hunter’s note was published after the testimony.
Early afternoon trading in New York saw a 1.6% decline in the Dow Jones Industrial Average, a 1.4% decline in the S&P 500, and a 1% decline in the Nasdaq.
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