The Fed stresses that ongoing rate hikes are required in a monetary report to Congress
The Federal Reserve underscored Friday in a semi-annual report Monetary policy report Congress that inflation remains too high and that further rate hikes are needed to bring inflation back to the Fed’s 2% target.
“The Federal Reserve is well aware that high inflation creates significant difficulties, particularly for those least able to afford the increased cost of basic necessities,” the report said.
Fed Chair Jerome Powell will testify on this report and monetary policy in general in his semi-annual testimony before Congress next Tuesday before the Senate Banking Committee and Wednesday before the House Financial Services Committee.
In these sessions he is expected to be hit hard by questions about inflation and further interest rate hikes. It will be Powell’s first testimony since Republicans took control of the House of Representatives.
In a largely backward-looking report, the Fed reiterated that bringing inflation down will likely require a period of below-trend growth and a slowdown in the labor market. Officials noted that the labor market remains very strong and needs to weaken to bring down persistently high service-sector inflation.
The report also found that while the market continued to function properly, market liquidity remained low compared to pre-pandemic levels in several key areas, including the treasury market. The Fed said it stands ready to trim its balance sheet should economic or financial changes make it necessary.
The Fed also noted that financial conditions have tightened significantly since last June, but equity market valuations remained notable, rising net as share prices rose modestly despite falling earnings expectations.
The report also said that the Fed’s interest expense increased significantly due to high interest rates to curb inflation, and as a result, net income turned negative.
The central bank has hiked the federal funds rate to between 4.5% and 4.75% in a series of hikes stretching back to last year.
Powell’s testimony next week will be his final comments before the next central bank policy meeting on March 21-22, at which officials are still largely in attendance expected raise its reference interest rate by a quarter of a percentage point. They will offer fresh interest rate forecasts as inflation indicators have been showing more signs of toughness in the US economy lately.
https://finance.yahoo.com/news/fed-stresses-ongoing-interest-rate-hikes-needed-in-monetary-report-to-congress-174533781.html The Fed stresses that ongoing rate hikes are required in a monetary report to Congress