The Federal Reserve will likely need to raise interest rates more than expected in response to recent strong data, Fed Chair Jerome Powell told U.S. lawmakers
Powell's remarks, indicating strongly that Fed officials will project a higher endpoint for the central bank's benchmark overnight interest rate at the upcoming March 21-22 meeting, sparked a quick repricing in bond markets as investors boosted bets to more than 70% that the Fed would approve a half-percentage-point rate hike at that meeting. Equity markets fell and the U.S. dollar was trading higher.
The Fed's policy rate is currently in the 4.50%-4.75% range. As of December, officials saw that rate rising to a peak of around 5.1%, a level investors expect may move at least half a percentage point higher now. Powell will testify again on Wednesday before the U.S. House of Representatives Financial Services Committee.The hearing and Powell's testimony honed in on an issue that is now at the center of the Fed's discussions as officials try to determine whether recent data will prove to be a "blip," or end up signaling that inflation remains stickier than thought and warrants a tougher response from the Fed.
While Powell said he thought the Fed's 2% inflation target could still be met without dealing a major blow to the U.S. labor market, he acknowledged in his testimony and in responses to senators' questions that "there will very likely be some softening in labor market conditions."
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