Federal Reserve Chair Jerome Powell is expected to echo fellow central bankers in suggesting interest rates will go higher than policymakers anticipated just weeks ago if economic data continue to come in hot. Powell heads to Capitol Hill as Fed officials eye raising rates several more times to quell stubborn inflation — a message that’s making Democratic lawmakers uneasy. Some policymakers are suggesting they may have to do more to tame prices following a series of strong reports on jobs, prices and consumption, which have spurred traders to bet the Fed will hike beyond the 5.1% level officials estimated in December.
“I want to be completely clear: There is a case to be made that we need to go higher,” Atlanta Fed President Raphael Bostic told reporters Thursday. “Jobs have come in stronger than we expected. Inflation is remaining stubborn at elevated levels. Consumer spending is strong. Labor markets remain quite tight.”
A hawkish tone from Powell, who will testify before a Senate panel on Tuesday and a House committee Wednesday, will likely prompt pushback from progressives warning the Fed not to inflict undue pain on the labor market. That’s been a bright spot for President Joe Biden as he prepares for a tough re-election fight in 2024 and Democrats try to defend a thin Senate majority. Republican lawmakers, meantime, may cheer the Fed’s actions because they keep the focus on the persistent inflation that’s kept Biden’s approval ratings low. The GOP won control of the House in November’s midterm elections, though also with a slim majority. Fed officials argue that to sustain labor-market strength over the longer term, they need to get inflation back to the central bank’s 2% target from the current 5.4% pace. “He’s got to come in hawkish and land with a hawkish message,” Diane Swonk, chief economist at KPMG, said of Powell’s testimony this week. “The bottom line is we’re still at a position where the Fed is not going to allow inflation to become unmoored.” Powell’s semiannual two-day testimony will be closely watched because it will probably be his last public remarks before the Federal Open Market Committee next meets March 21-22. The Fed chief said last month that officials anticipated they would need to raise rates further, given the “extraordinarily strong” labor market. If the job situation remains very hot, “it may well be the case that we have to do more,” he told David Rubenstein during a Feb. 7 question-and-answer session at the Economic Club of Washington.
While the majority of policymakers are signaling that the central bank should continue raising rates in more measured 25 basis-point increments, some officials and Fed watchers have suggested a 50 basis-point move should be on the table if inflation fails to slow. “It’s clear there is more work to do,” San Francisco Fed President Mary Daly told an audience Saturday at Princeton University in New Jersey. “In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary.”