Powell will face the Capitol Hill hearing at a time of growing uncertainty over the Fed’s interest rate plans

WASHINGTON (AP) — Federal Reserve Chairman Jerome Powell will begin two days of congressional hearings on Wednesday that will likely focus on the question that devoured the central bank last week: how much and how quickly Will the Fed raise its key interest rate from here?

The hearings, starting with the House Financial Services Committee, follow a Fed meeting last week that produced a confusing picture of its likely next steps. His 18-member policy committee predicted two more interest rate hikes this year — one more than analysts had expected — to tackle inflation, which they say will be higher this year. next than they had previously anticipated.

Despite those bleak forecasts, Fed policymakers agreed last week to forgo a rate hike for the first time in 11 meetings dating back to March 2022. And at a press conference, Powell explicitly said no no decision had been made on whether to raise the Fed’s benchmark index. rates at its next meeting at the end of July. Still, most economists have inferred from both policymakers’ forecasts and Powell’s words that a rate hike next month is virtually certain.

The “meeting was hawkish and peculiar,” said Michael Feroli, an economist at JPMorgan and a former Fed staffer. “Why not just go ahead and increase?” (In Fed parlance, “hawks” generally favor higher rates to stifle inflation, while “doves” generally advocate lower rates to help a healthy labor market.)

Powell pointed out at his press conference that leaving rates unchanged for now would allow the Fed time to assess the impact of its rate hikes on the economy before deciding on its next moves. It has raised its benchmark rate by 5 percentage points in just over a year – the fastest pace of rate hikes in four decades.

“Given how far we’ve come, it may make sense for rates to rise but at a more moderate pace,” Powell said. “It’s just the idea that we’re trying to get it right.”

The Fed’s rate increases have made borrowing for consumers and businesses more expensive on a range of loans, including home and auto loans, credit cards and business loans. The objective has been to calm inflation by slowing spending and hiring.

Powell reiterated that the Fed still hopes to pull off a tricky feat: to weaken the economy enough to bring inflation under control, without undermining it to the point of causing a deep recession.

“There is a way to get inflation back to 2% without having to see the kind of sharp slowdown and deep job losses we’ve seen in so many past instances,” the Fed chairman said. “It’s possible.”

Still, Republicans and Democrats in the House and Senate may express doubts about whether the Fed can pull off such a feat. Republicans might worry that the Fed is not moving fast enough to defeat high inflation. Democrats could pressure Powell on whether the central bank has already done enough and whether further hikes could lead to a severe recession.

Powell sought to overlap the two views regarding the Fed’s progress on inflation. Last week he said inflation remained too high and added that there had not been as much progress in slowing it as the Fed would like.

At the same time, the Fed Chairman added, “the conditions that we need to see in place to bring inflation down are coming together.”

The sometimes conflicting messages suggest that Powell sought to balance the competing demands of hawks and doves on the Fed’s interest rate-setting committee. For now, the hawks seem to be dominating: Last week, 12 of 18 policymakers indicated they were considering at least two more rate hikes this year, and four were predicting one more. Only two officials expect the central bank to keep its policy rate at its current level of 5.1% until the end of the year.

On Tuesday, Republicans on the House committee may also have concerns about Fed regulation of banks following three major bank failures since March.

Michael Barr, the Fed’s top board regulator, suggested he would support requiring banks to set aside more capital to offset potential loan losses. Such a decision is opposed by the banking sector, which argues that it would reduce banks’ ability to lend.

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