The main interest rate of the Federal Reserve (Fed) could continue to rise and exceed 5.1%, the level that the responsible of the institution until now considered the limit, warned today the president of the North American central bank.
“The latest economic data is stronger than expected”, which suggests that “the final level of interest rates is likely to be higher than previously anticipated”, declared Jerome Powell speaking to a Senate committee.
Fed officials published their latest forecasts in December and will update them at their March 21-22 meeting.
After several sharp rises in interest rates, the Fed has slowed down in recent months and the most recent meeting, in early February, resulted in an increase of 25 basis points.
But the situation could change, Powell warned. “If the data indicate, in their entirety, that a more rapid adjustment is warranted, we will be prepared to accelerate the pace of interest rate hikes”, he maintained.
“Although inflation has been more moderate in recent months, the process of bringing inflation down to 2% will be a long and likely bumpy one,” said the central bank governor.
To stop the rise in inflation, the Fed has been raising interest rates for a year now, moving from the level they had at the time of the pandemic, between 0 and 0.25%, to a range between 4.5% and 4 .75%.
The rise in rates makes credit more expensive for households and companies and should curb consumption, which eases the pressure on prices.
But, despite these efforts, consumption remains solid and inflation accelerated in January to 5.4%, according to the PCE index, which is the most followed by the Fed.
Another inflation indicator, the CPI index, showed a slight easing to an annual rate of 6.4% in January, when it was at 6.5% in the previous month. In the monthly comparison, there was, however, an acceleration for the first time since September, to 0.5% against 0.1%.