Powell says that Fed may need more aggressive rate hikes

The Federal Reserve may need more aggressive interest rate hikes as cooling in the U.S. economy and inflation appears to have “partly reversed,” Federal Reserve Chair Jerome Powell said Tuesday.

The warning from Powell comes as the Biden administration continues its fight to tame inflation, and could signal a reversal from the central bank after it slowed rate hikes late last year, when there were indications that the U.S. economy may be weakening.

But Powell told members of the Senate Banking Committee on Tuesday that recent economic indicators, such as jobs data, spending and inflation show that the cooling that presented itself may have begun to reverse, saying the numbers have come in “stronger than expected.”

“Data from January on employment, consumer spending, manufacturing production and inflation have partly reversed the softening trends that we’d seen in the data just a month ago,” Powell told lawmakers. “The breadth of the reversal, along with revisions to the previous quarter, suggests that inflationary pressures are running higher than expected.”

Powell said that if the data indicated that faster tightening in the economy is needed, the Fed would be willing to “increase the pace of rate hikes.”

Fed leaders are set to meet later this month to consider policy changes, including their next rate hike. They slowed rate increases at the beginning of this year from a half point increase in December to a quarter of a point increase at the start of 2023.

The warning from Powell also comes as jobs data keeps surpassing expectations from economists and Fed leaders. The U.S. economy added 517,000 jobs in January and unemployment fell to 3.4 percent, a level not reached since the 1960s. The numbers have thrown into doubt any impression that the economy is weak.

Republicans have pounced on inflation numbers as one of their main arguments against the Biden administration, arguing the White House has been unable to tame runaway inflation. But President Biden and his allies point to other strong economic indicators, like job growth and unemployment, as significant accomplishments. 

Powell will give two days of testimony to lawmakers on Capitol Hill this week, ahead of the March 21 and 22 meeting of Fed leaders.