US Federal Reserve Chair Jerome Powell on Tuesday hinted that interest rates will likely peak at a higher level than previously anticipated on the back of stronger economic data than anticipated.
Powell noted January figures for employment, consumer spending, manufacturing production, and inflation pointed to a partial reversal of earlier softening trends, according to the news agency AFP. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” added Powell.
The US stocks also came under pressure with most of February remaining in the red as Treasury yields climbed amid concerns of more aggressive Fed actions to counter inflation.
The central bank has raised its benchmark lending rate eight times since early last year, as the Fed tackles inflation that remains stubbornly above its long-term target of 2 per cent.
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Despite implementing several measures, the Fed’s favored inflation tactics, the personal consumption expenditures price index, rose slightly to reach an annual rate of 5.4 percent in January.
The Fed chief also noted that the labor market remains “extremely tight.” “To restore price stability, we will need to see lower inflation in this sector, and there will very likely be some softening in labor market conditions,” he said.
US employment gains had gone up unexpectedly in January while unemployment slipped to its lowest rate in more than five decades amid efforts to cool the economy. Policymakers were worried that elevated wages may pose difficulties in tackling inflation.
“The process of getting inflation back down to two percent has a long way to go and is likely to be bumpy,” Powell said. “We will stay the course until the job is done,” he added.
Some sectors such as housing have slumped since the Fed’s aggressive campaign against inflation, other areas remain stickier.
Powell also warned US banks about the risks of getting involved in the digital-asset industry. He laid out a series of concerns he has with crypto, and said lenders the regulator oversees must be “taking great care” when engaging with it. He added that the central bank didn’t want to prevent innovation.