The Fed has sharply raised interest rates in the past year to combat accelerating prices, and year-over-year inflation has dropped for seven straight months.
At a news conference last month, Powell said that the long-awaited “disinflation” process — a broad and steady slowdown in inflation — had finally begun. Yet he stressed that it was only in its early stages and would take longer than many economists assumed. Other Fed officials have since echoed that message.
Pearce expects the Fed to raise its key rate by a quarter-point at each of its next three meetings, and he foresees the possibility of additional hikes beyond those. The Fed's hikes typically make mortgages, auto loans, credit card rates and business lending more expensive. It's a trend that can slow spending and inflation and also threaten to send the economy sliding into a recession.
Though Fed officials say they don't want unemployment to rise significantly, they have warned that hiring will have to slow and some job losses will be necessary to tame inflation, though they couch such views in central bank jargon. Many economists say they think inflation will keep falling to roughly 3.5% or 4% but could plateau at that level. Getting it down to the Fed's 2% target level could require more pain in the form of widespread job losses.
Other issues will likely arise when Powell testifies Tuesday to the Senate Banking Committee and Wednesday to the House Financial Services Committee. One could be who will replace Lael Brainard, who hasSen. Robert Menendez, a member of the Banking Committee, has urged the Biden administration to fill the spot with a Hispanic. Menendez notes that there has never been a Hispanic member of the Fed's rate-setting committee.
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