Jerome Powell says the fight against inflation will continue.Credit:AP
The central bank’s 18 policymakers envision raising their key rate by an additional half-point this year,to about 5.6 per cent,according to economic forecasts they issued on Wednesday.
The economic projections revealed a more hawkish Fed than many analysts had expected. Twelve of the 18 policymakers forecast at least two more quarter-point rate increases. Four supported a quarter-point increase. Only two envisioned keeping rates unchanged. The policymakers also predicted that their benchmark rate will stay higher for longer than they envisioned three months ago.
“We understand the hardship that high inflation is causing,and we remain strongly committed to bring inflation back down to our 2 per cent goal,” Fed chair Jerome Powell said at a news conference. “The process of getting inflation down is going to be a gradual one — it’s going to take some time.”
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One reason why the officials may be predicting additional rate hikes is that they foresee a modestly healthier economy and more persistent inflation that might require higher rates to cool. Their updated forecasts show them predicting economic growth of 1 per cent for 2023,an upgrade from their meagre 0.4 per cent forecast in March. And they expect “core” inflation,which excludes volatile food and energy prices,of 3.9 per cent by year’s end,higher than they expected three months ago.
At his news conference,Powell made clear that the Fed still regards the still-robust job market and the wage growth that has accompanied it as contributing to high inflation. At the same time,he expressed optimism that lower apartment rental costs,among other items,may help slow inflation in the coming months. He stressed that the Fed wants to see an inflation slowdown actually materialise before holding off on further rate hikes.
“We want to see inflation coming down decisively,” he said.