Powell: "Final Interest Rate Will Rise Further... Ready to Accelerate Pace" (Update)

Jerome Powell, Chair of the U.S. Federal Reserve (Fed), reinforced tightening efforts on the 7th (local time) by stating that "the terminal rate will be higher than previously predicted."

Chair Powell appeared before the Senate Banking Committee that day to deliver the semiannual monetary policy report, saying, "Recent economic indicators have all come out stronger than expected." He explained, "This suggests that the terminal rate level is likely to be higher than previously anticipated," adding, "If the overall data require faster tightening, we are prepared to accelerate the pace of rate hikes."

[Image source=AP Yonhap News]

The Fed has raised U.S. interest rates to 4.5?4.75%, the highest since 2007, through a tightening cycle that began in March last year, and has signaled further increases. This is due to inflation proving difficult to control. Additionally, recent employment and consumer indicators have all maintained strong levels.

Chair Powell noted, "There has been little evidence of disinflation in core services excluding housing," emphasizing, "To bring inflation down to the 2% target, easing inflation in core services and a loosening labor market are necessary." He stressed, "There is still a long way to go to reduce inflation," and "We must maintain a restrictive policy stance for the time being to stabilize prices."

However, Powell did not specify how high the terminal rate might rise. He said the choice between a 0.25 percentage point or 0.5 percentage point increase "will be determined by the data."

Previously, the Fed's dot plot released in December last year showed a median year-end rate of 5.1% for this year. It is certain that the rate outlook will be revised upward in the March dot plot.

Furthermore, Powell added, "Historical cases caution against prematurely easing policy," and said, "We will do everything necessary to achieve maximum employment and price stability goals."

Meanwhile, the New York stock market fell across the board in the morning after Powell's hawkish remarks were made public. The Nasdaq index, which is sensitive to interest rates and centered on tech stocks, is currently trading about 0.8% lower than the previous close.