Federal Reserve Chair Jerome Powell said on Thursday that the US central bank would deliver more interest rates hikes by the end of the year in its prolonged fight against high inflation.
“…inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go,” Powell said in a speech at the Banco de Espana conference on financial stability in Madrid, Spain.
The monetary policy may not be restrictive enough and has not been long so long enough, Powell said on Wednesday at the ECB forum in Sintra, Portugal.
A very strong labor market is pulling the economy, he said at the closely-watched conference in Sintra.
Policymakers are seeing the effects of the policy tightening on demand in the most interest rate-sensitive sectors of the economy, particularly housing and investment, Powell said on Thursday.
However, it will take time for the full effects of monetary restraint to be realized, especially on inflation, the Fed chief added.
“As noted in the FOMC’s Summary of Economic Projections, a strong majority of Committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year,” Powell said.
European Central Bank President Christine Lagarde has also said that the battle against persistently high inflation is not over and have almost confirmed another rate hike in July.
More tightening is expected before the year as inflation is not projected to return to the 2 percent target this year. Lagarde has said that the main driver of inflation was the unit labor cost.
At Sintra, Bank of England Governor Andrew Bailey also cited the persistently high inflation and a resilient economy, especially the labor market, for the decision to deliver a bigger-than-expected 50 basis points hike this month.
Bailey expects interest rates to stay higher for longer.
The US banking system remains sound and resilient, deposit flows have stabilized, and strains have eased, Powell said.
“We cannot take the resilience of the financial system for granted, however,” he said.
Powell described the bank runs and failures such as the Silicon Valley Bank collapse as “painful reminders” that policymakers cannot predict all of the stresses that will inevitably come with time and chance.
“We therefore must not grow complacent about the financial system’s resilience,” he added.
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