Fed Chair Reaffirms More Rate Hikes

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Fed Chair Reaffirms More Rate Hikes

Jun 30, 2023 | News | 0 comments

Federal Reserve Chair Jerome Powell, while addressing Congress, restated that the current pause in interest rate hikes is likely temporary and emphasized the probability of additional rate increases in the near future.

One week after the Federal Open Market Committee’s meeting, where they chose not to raise the benchmark interest rate for the first time in 14 months, Federal Reserve Chair Jerome Powell presented the Fed’s semiannual Monetary Policy Report to the House Financial Services Committee. Powell emphasized that the decision in May does not necessarily indicate the future direction of monetary policy.

Federal Reserve Chair Jerome Powell recognized the challenges that the Fed’s proactive policy had on rate-sensitive sectors like the real estate market. He acknowledged the existence of uncertain delays between monetary policy decisions and their economic effects, leading to the current pause in rate hikes. However, Powell emphasized that despite the easing of inflation, the task of controlling it is not yet complete. He stated that achieving lower inflation would likely involve a period of below-trend growth and some weakening of labor market conditions, but it is essential for long-term economic stability.

Following the recent Federal Reserve meeting, financial projections already indicated a shift towards a more hawkish policy later in the year. The median projection from Fed policymakers suggested a potential increase of 50 basis points to the anchor rate by the end of 2023, equivalent to two additional rate hikes if each increment is a quarter percentage point. Among the 18 policymakers, nine predicted two more increases in the current year. Chairman Powell informed Congress that nearly all participants in the Federal Open Market Committee anticipate a need to raise interest rates further by year-end.

While acknowledging the initial importance of an aggressive approach in combating inflation, Powell clarified that such urgency has diminished. However, his statements to the House emphasized the need to temper optimistic expectations of a prolonged pause in rate hikes. Marty Green, Principal at Polunsky Beitel Green, highlighted that Chairman Powell’s message indicated a likely temporary halt and that inflation concerns remain prominent. By signaling potential rate increases in future meetings, it eliminates the hope of rate cuts for the remainder of 2023, which some market participants held onto.