Raising Interest Rates to Fight Inflation

Federal Reserve Chairman, Jerome Powell, told congressional lawmakers that the U.S. central bank was committed to crushing its worst inflation in 40 years. Powell promised to raise rates until there was “convincing evidence” that prices were falling.

He testified at the Senate Banking Committee on Wednesday and Thursday before the House Financial Services Committee. These briefings are part of Powell’s monetary policy, to update the House and Senate every six months.

A week ago, the they voted to raise rates by 75 basis points, the first time since 1994.  The rate hikes underscore the seriousness financial policymakers are in dealing with the inflation crisis after troubling economic reports. The move put the key benchmark federal funds rate between 1.50% and 1.75%, the highest level since the COVID-19 outbreak two years ago.

Powell told reporters at a post-meeting news conference that in July, the Federal Reserve will add another 50 to 75 basis points. The federal funds benchmark rate could reach 3.4 percent by the end of the year. In 2023 the benchmark rate of will likely reach 3.8 percent, a big increase from the March forecast.

On Wednesday, Powell again shared his view, promising to raise short-term interest rates until there were signs that inflation was approaching the Fed’s 2 percent target.

Although Powell said the Federal Reserve was not trying to trigger a recession, he did not rule out the possibility of a recession and stressed that lowering inflation is the top priority.