(Reuters) – With U.S. inflation above the Federal Reserve’s 2% target and a tight labor market, most central bankers expect to have to raise interest rates at least to two more rallies by the end of the year, the Fed chairman said Thursday.
In a speech prepared for a Bank of Spain conference on financial stability in Madrid, Jerome Powell did not specify when these rate hikes might take place.
He reiterated that the banking strains that emerged in March “may well lead” to a bigger tightening of credit conditions than would be expected from rate hikes alone. But he also pointed to inflation still being too high and the “long way to go” before inflation returns to the Fed’s 2% target.
“A large majority of committee members expect it to be appropriate to raise rates two or more times by the end of the year,” added Jerome Powell.
The Fed will hold four more monetary policy meetings in the year, with the next on July 25-26.
The monetary tightening that has been going on for a year has dampened business investment and the housing sector, although some indicators have picked up recently, he argued.
“It will take time for the rest of the economy to fully feel the impact of rate hikes,” he continued.
The Fed boss estimates that the PCE price index should have risen 3.9% in May year on year (vs. 4.4% in April) and in its “core” version, which excludes oil prices. food and energy, by 4.7% (as in the previous month).
Official figures will be released on Friday.
(Ann Saphir, Laetitia Volga, edited by Kate Entringer)
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