Powell Keeps Options Open for Back-to-Back Rate Hikes in the Near Future

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US Federal Reserve Chair Jerome Powell has hinted at the potential for consecutive interest rate hikes in the coming months, as part of the central bank's ongoing efforts to temper the economy. This comes after the Fed temporarily paused its string of aggressive rate increases, allowing policymakers to assess the impact of previous moves on inflation. During a central banking conference in Portugal, Powell revealed that a majority of the Fed's rate-setting committee members envision two more rate increases before the year concludes.

Emphasizing the likelihood of further restrictions, Powell stated, "We believe there's more restriction coming." However, he refrained from confirming whether the Fed would adopt the approach of raising rates at every other meeting, as suggested by some analysts. Powell asserted, "I wouldn't take moving to consecutive meetings off the table at all."

To combat high inflation and steer it towards the Federal Reserve's desired long-term target of two percent, Powell acknowledged that US monetary policy would require additional time. He expressed that the current policy had not been sufficiently restrictive for an extended period. Over the past year, the US central bank has increased its benchmark lending rate by a substantial five percentage points. Although inflation has moderated since the Fed initiated its monetary tightening cycle, it remains considerably higher than the target level.

Powell indicated that the Fed does not expect to achieve its two percent target for core inflation, which excludes the volatile food and energy sectors, until 2025. In the meantime, the Federal Reserve will maintain a restrictive stance for as long as necessary. Despite indications of a softening labor market, with slight signs of economic deceleration, the unemployment rate in the US has remained close to historic lows.

Earlier predictions by Fed researchers suggested that the United States could experience a mild recession later this year. However, Powell reiterated his belief that the world's largest economy could still evade a recession. He stated, "To me, it's not the most likely case, but it's certainly possible."

Looking ahead, futures traders are assigning an over 80 percent probability of the Fed voting to raise interest rates by a quarter percentage-point during its upcoming meeting scheduled between July 25 and 26. If realized, this move would elevate the Fed's benchmark lending rate to a range between 5.25 percent and 5.5 percent, marking its highest level in 22 years.

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