Jerome Powell to Testify to Congress on Outlook for Rates, Inflation

The Fed raised its benchmark federal-funds rate by a quarter-percentage-point to a range between 4.5% and 4.75% last month in an effort to reduce price pressures by cooling the economy. It slowed the pace of rate rises following increases of a larger half-point in December and 0.75-point in November.

The Fed has been trying to curb investment, spending and hiring by raising rates, which makes it more expensive to borrow and can push down the price of assets such as stocks and real estate. The fed-funds rate influences other borrowing costs throughout the economy. 

In December, most Fed officials thought they would raise the fed-funds rate this year to between 5% and 5.5% and hold it there into 2024. They will submit new projections at the coming meeting.

At a Feb. 1 press conference, Mr. Powell indicated that if the economy slowed as officials expected, they could raise rates by a quarter-percentage-point at each of their meetings in March and May.

But he also cautioned they could raise rates more if the economy showed surprising strength.

 “We’re going to be looking carefully at the incoming data between now and the March meeting,” Mr. Powell said at the press conference. “If we come to the view that we need to…move up rates beyond what we said in December, we would certainly do that.”

Since he made those comments, several economic reports have revealed hiring, spending and inflation were hotter in January; moreover, revisions showed inflation and demand for labor didn’t slow as much as initially reported late last year.

As a result, several other Fed officials have indicated they could raise rates this year more than previously projected. Three regional Fed bank presidents have said they could have backed a larger half-point increase last month or would do so at the coming meeting.

The recent strong economic data shifted investors’ rate expectations. When the Fed last met, Feb. 1, investors in interest-rate futures markets anticipated officials would raise the fed-funds rate just once more this year, to a peak of 4.9%, and begin cutting it this fall. On Monday, investors anticipated the rate would rise to around 5.5% by midyear and remain there through the end of 2023, according to CME Group.

Investors will be parsing Mr. Powell’s language closely for clues about whether the Fed is likely to raise rates by a quarter-point, as widely expected, or whether he might indicate openness to a larger half-point increase.

Mr. Powell could face limits in guiding markets this week because two widely watched economic reports that could influence officials’ deliberations are set to be released after he testifies and before the next meeting. The Labor Department on Friday is set to report on February hiring. Next week, it is set to release its February inflation report.

Employers added 517,000 jobs in January, a figure that shocked economists who were anticipating hiring to slow, while the unemployment rate declined to 3.4%, a 53-year low. Friday’s labor report could offer clues on whether the gain was a blip or a sign of an economy that is accelerating.

Inflation’s decline late last year stalled in January. The 12-month inflation rate, excluding volatile food and energy items, was 4.7%, up from 4.6% in December, as measured by the Commerce Department’s personal-consumption expenditures price index.

After holding the fed-funds rate near zero after the pandemic hit the U.S. economy, officials lifted the rate more over the past 12 months than any time since the early 1980s. Officials have slowed the pace of increases to see the effects of their moves.

Tuesday’s hearing marks Mr. Powell’s first appearance before Congress since last June, when the Fed had lifted the fed-funds rate to a range between 1.5% and 1.75%.

A handful of Democratic lawmakers who consistently played down inflation worries in 2021 have warned Mr. Powell against raising rates too fast or too high. They have expressed concern the Fed leader is too eager to slow down the economy by seeking increases in unemployment.

Write to Nick Timiraos at [email protected]

The Fed raised its benchmark federal-funds rate by a quarter-percentage-point to a range between 4.5% and 4.75% last month in an effort to reduce price pressures by cooling the economy. It slowed the pace of rate rises following increases of a larger half-point in December and 0.75-point in November.

The Fed has been trying to curb investment, spending and hiring by raising rates, which makes it more expensive to borrow and can push down the price of assets such as stocks and real estate. The fed-funds rate influences other borrowing costs throughout the economy. 

In December, most Fed officials thought they would raise the fed-funds rate this year to between 5% and 5.5% and hold it there into 2024. They will submit new projections at the coming meeting.

At a Feb. 1 press conference, Mr. Powell indicated that if the economy slowed as officials expected, they could raise rates by a quarter-percentage-point at each of their meetings in March and May.

But he also cautioned they could raise rates more if the economy showed surprising strength.

 “We’re going to be looking carefully at the incoming data between now and the March meeting,” Mr. Powell said at the press conference. “If we come to the view that we need to…move up rates beyond what we said in December, we would certainly do that.”

Since he made those comments, several economic reports have revealed hiring, spending and inflation were hotter in January; moreover, revisions showed inflation and demand for labor didn’t slow as much as initially reported late last year.

As a result, several other Fed officials have indicated they could raise rates this year more than previously projected. Three regional Fed bank presidents have said they could have backed a larger half-point increase last month or would do so at the coming meeting.

The recent strong economic data shifted investors’ rate expectations. When the Fed last met, Feb. 1, investors in interest-rate futures markets anticipated officials would raise the fed-funds rate just once more this year, to a peak of 4.9%, and begin cutting it this fall. On Monday, investors anticipated the rate would rise to around 5.5% by midyear and remain there through the end of 2023, according to CME Group.

Investors will be parsing Mr. Powell’s language closely for clues about whether the Fed is likely to raise rates by a quarter-point, as widely expected, or whether he might indicate openness to a larger half-point increase.

Mr. Powell could face limits in guiding markets this week because two widely watched economic reports that could influence officials’ deliberations are set to be released after he testifies and before the next meeting. The Labor Department on Friday is set to report on February hiring. Next week, it is set to release its February inflation report.

Employers added 517,000 jobs in January, a figure that shocked economists who were anticipating hiring to slow, while the unemployment rate declined to 3.4%, a 53-year low. Friday’s labor report could offer clues on whether the gain was a blip or a sign of an economy that is accelerating.

Inflation’s decline late last year stalled in January. The 12-month inflation rate, excluding volatile food and energy items, was 4.7%, up from 4.6% in December, as measured by the Commerce Department’s personal-consumption expenditures price index.

After holding the fed-funds rate near zero after the pandemic hit the U.S. economy, officials lifted the rate more over the past 12 months than any time since the early 1980s. Officials have slowed the pace of increases to see the effects of their moves.

Tuesday’s hearing marks Mr. Powell’s first appearance before Congress since last June, when the Fed had lifted the fed-funds rate to a range between 1.5% and 1.75%.

A handful of Democratic lawmakers who consistently played down inflation worries in 2021 have warned Mr. Powell against raising rates too fast or too high. They have expressed concern the Fed leader is too eager to slow down the economy by seeking increases in unemployment.

Write to Nick Timiraos at [email protected]