by Howard Schneider
WASHINGTON (Reuters) – The Federal Reserve still has “a long way to go” to bring inflation back to the 2% target, the chairman of the U.S. central bank said on Wednesday.
“We are very far from our inflation target and remain focused on returning to the 2% target,” said Jerome Powell before the House Financial Services Committee.
The Fed’s preferred measure of inflation, the PCE index, remains high at +4.4% YoY in April, after peaking around 7% last year.
In the text prepared for the hearing, Jerome Powell, pointed out that even if the Fed opted for the status quo at its last meeting, “virtually all” of the committee members expect further increases in rates are appropriate by the end of 2023.
He added that it will take time for “the full effects of monetary restraint to be felt, particularly on inflation”, suggesting that it is increasingly difficult for members of the Fed to determine if their actions so far are sufficient to meet their price target.
Investors are widely anticipating an increase in July of the target rate of the “fed funds” by a quarter of a point, in a range of 5.25%-5.5%. They are more hesitant about what to do next.
POWELL DEFENDS THE REVIEW OF BANKING REQUIREMENTS
Faced with Republican lawmakers hostile to the Fed being too tough on the financial sector after the March banking crisis, Jerome Powell defended the ongoing revision of the regulatory and capital rules required of banks.
“A number of proposals are being worked on. They have not been finalized,” he said. Any changes to capital or other rules “should be justified”.
This semi-annual hearing, which will be followed by another on Thursday in the Senate this time, was dominated by questions from the Republican camp about the review of banking supervision launched by Fed Vice Chairman for Supervision Michael Barr , after the bankruptcy of the SVB and other establishments.
Jerome Powell added that any changes “will take time” and are unlikely to impact the sector in the short term.
(Report Howard Schneider, with Jason Lange, Laetitia Volga, edited by Kate Entringer)
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