Interest Rates May Rise Higher Than Expected, Warns FED Chair Powell

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Updated: 07 March 2023

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Federal Reserve Chairman Jerome Powell has warned that the US central bank may increase interest rates higher than expected to combat inflation.

What: US Federal Reserve Chairman Jerome Powell has warned that the central bank may increase interest rates higher than anticipated.
Why: The Fed hopes to control inflation and stabilize the economy to address the mounting inflation pressures and supply chain disruptions affecting the country’s economy due to the COVID-19 pandemic.
What next: This move could lead to slower economic growth and higher borrowing costs for consumers and businesses, but it may be necessary to bring inflation back down to the target of 2%.

Powell spoke before the United States Senate Committee on Banking, Housing, and Urban Affairs (Senate Banking Committee). Powell said that the latest economic data had come in stronger than expected, suggesting that the ultimate level of interest rates is likely to be higher than previously anticipated. If the data indicated that fast tightening was necessary, the Fed would be prepared to increase the rate hikes. Despite recent moderation, Powell also noted that getting inflation back down to 2% will likely be bumpy.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said.

“If the totality of the data were to indicate that fast tightening is warranted, we would be prepared to increase the pace of rate hikes,” he added.

The comments come as the US economy faces rising inflation pressures and supply chain disruptions caused by the COVID-19 pandemic. The Fed’s decision to potentially increase interest rates may help control inflation, but it could also lead to slower economic growth and higher borrowing costs for consumers and businesses.