Fed’s Powell: Strong hiring could force further rate hikes
Federal WASHINGTON — Reserve Chair Jerome Powell said Tuesday that if the job market further strengthens or inflation readings accelerate, the Fed might have to raise its benchmark interest rate higher than it now projects.
Powell’s remarks followed the government’s blockbuster report last week that employers added 517,000 jobs in January, almost double the previous month’s total. The unemployment rate fell to its lowest level in 53 years, 3.4%.
“The reality is if we continue to get strong labor market reports or higher inflation reports, it might be the case that we have to raise rates more” than is now expected, Powell said in remarks to the Economic Club of Washington.
Though price pressures are easing and Powell said he envisions a “significant” decline in inflation this year, he cautioned that “these are the very early stages of disinflation. It has a long way to go.”
Powell’s remarks Tuesday followed the moderately optimistic note he struck at a news conference last week. Speaking to reporters then, Powell noted that high inflation had begun to ease and said he believed the Fed could tame spiking prices without causing a deep recession involving waves of layoffs.
But the Fed chair warned then that the job market was still out of balance, with robust demand for labor and too-few workers in many industries leading employers to sharply raise wages, a trend that could help keep inflation high.
The stronger labor-market data revived questions by bond investors about whether a pickup in economic activity and inflation would lead Fed officials to consider raising rates by a half percentage point in March.
Bond investors and economists have anticipated that more evidence of a slowdown in investment, spending and hiring could persuade the Fed to stop lifting rates after raising them at the Fed’s next meeting, March 21-22, and again in May. Signs of any economic reacceleration, however, could prompt officials to delay decisions about a pause into the summer.
According to projections released after their policy meeting in December, most Fed officials thought they would raise the fedfunds rate to 5.1% this year, which would imply quarter-point rate increases at their March and May meetings. More than a third of officials, meanwhile, anticipated lifting the rate above 5.25%, which would call for another increase in June. No officials projected cuts this year.
“We’re going to react to the data,” Powell said.