UPDATE - US Fed Chair says nearly all voting members view further rate hikes appropriate
Jerome Powell says subdued economic growth expected to continue, as high interest rates weigh on investment
ADSS COMMENTS BY POWELL, ADDITIONAL FED PROJECTIONS
By Ovunc Kutlu
ISTANBUL (AA) - US Federal Reserve Chair Jerome Powell said Wednesday that nearly all voting members of the central bank believe further rate hikes would likely be appropriate in 2023.
Powell's post-meeting comments came after the Fed skipped a rate hike for the first time since January 2022, but left the door open for two more rate increases of 25 basis points each during the remainder of its meetings later this year.
"US economy slowed significantly last year, and recent indicators suggest that economic activity has continued to expand at a modest pace," he said. "Activity in the housing market remains weak, largely reflecting higher mortgage rates."
"Higher interest rates and slower output growth also appear to be weighing on business-fixed investment," he said.
Powell said voting members on Federal Open Market Committee (FOMC) generally expect subdued economic growth to continue.
"We have been seeing the effects of our policy tightening and demand in the most interest rate sensitive sectors of the economy, especially housing and investment. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation," he said.
The Fed chair stressed that the American economy is facing headwinds from tighter credit conditions for households and businesses, which are likely to weigh on economic activity, hiring and inflation.
"The extent of these effects remain uncertain," he added.
Despite the gloomy outlook for the American economy, the Fed raised its growth forecast to 1% for 2023, up from its previous projection of 0.4% made in March.
The growth expectations for 2024 and 2025, however, were revised down by 0.1 percentage point each, down to 1.1% and 1.8%, respectively, from 1.2% and 1.9%.
“Nearly all committee participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year. But at this meeting, considering how far and how fast we’ve moved, we judged it prudent to hold the target range steady,” he said.
"In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," he said.
Regarding the revision of projections on the Fed's terminal rate, Powell said the path for monetary policy will adjust as appropriate if the economy does not evolve as expected.
The Fed could make two more rate hikes this year, as its terminal rate projection was moved up to 5.6% from 5.1%.
The central bank's federal funds rate projection for 2024 and 2025 were also revised up to 4.6% and 3.4%, respectively.
It suggests, however, that the Fed could begin making rate cuts next year by 25 basis points four times in 2024, followed by an additional five cuts in 2025.
The Fed's next two-day meeting will conclude July 26, but Powell said the FOMC did not decide on cuts during the current meeting.
He emphasized that the conditions that the FOMC needs to see to bring inflation down are "coming into place" but "the process of that actually working on inflation is going to take some time."
"The process of getting inflation down is going to be a gradual one, and it's going to take some time," he said. "With goods, we need to see continued healing in supply side conditions."
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