Powell Expects Further Rate Hikes As Inflation Remains Stubbornly Elevated

(RTTNews) - Following last week's widely expected pause, the Federal Reserve is likely to resume raising interest rates later this year, Fed Chair Jerome Powell said during testimony before the House Financial Services Committee on Wednesday.

In prepared remarks, Powell reiterated the Fed is likely to continue raising interest rates in an effort to contain stubbornly elevated inflation.

"Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year," Powell said.

The Fed left rates unchanged last week, but the central bank's latest projections suggest it plans to resume raising rates later this year, forecasting a rate of 5.6 percent by the end of 2023.

If the Fed decided to revert to its recent quarter-point increases, the forecast suggests the central bank will raise rates two more times this year.

The forecast for additional rate hikes come as Powell noted inflation pressures continue to run high and said the process of getting inflation back to the Fed's 2 percent target has a "long way to go."

Powell acknowledged inflation has moderated somewhat since the middle of last year but pointed to the Fed's preferred inflation gauge showing core consumer prices, which exclude food and energy prices, were still up by 4.7 percent year-over-year in April.

"We have been seeing the effects of our policy tightening on demand in the most interest rate-sensitive sectors of the economy," Powell said. "It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation."

CME Group's FedWatch Tool is currently indicating a 76.9 percent chance the Fed will raise rates by another quarter point following its next meeting in late July.

In his remarks, Powell also briefly addressed the condition of the banking sector, calling the U.S. banking system "sound and resilient."

"The recent bank failures, including the failure of Silicon Valley Bank, and the resulting banking stress have highlighted the importance of ensuring we have the appropriate rules and supervisory practices for banks of this size," Powell said.

He added, "We are committed to addressing these vulnerabilities to make for a stronger and more resilient banking system."