Federal Reserve Chair Jerome Powell stated the central bank anticipates one or two more rate hikes within the year but with a ”Careful Pace” and a more gradual approach to prevent the economy from falling into recession.
Powell made these remarks during his testimony before the House Financial Services Committee on June 21, 2023.
Furthermore, as policymakers approach the conclusion of their extensive monetary policy tightening, they plan to maintain a deliberate pace. Powell emphasized the need for carefulness as the Federal Reserve reaches a potential stopping point for its historic round of tightening.
Slow Down Of Rate Hikes
During a hearing before the Senate Banking Committee, Powell stated,
“We’re at least close to where we think our destination is.”
He emphasized the importance of moving at a careful pace, which aligns with common sense. Powell explained that the purpose of holding rates steady at the recent Fed meeting was to slow down the rate of raising borrowing costs.
After raising rates consistently over ten meetings, sometimes by as much as three-quarters of a point, the Fed decided to skip the June meeting. Now, investors anticipate rate hikes to resume in July, with the possibility of further increases evaluated at alternate sessions.
This pace of assessment aligns with previous tightening cycles. Powell’s statement highlights the deliberate approach taken by the Federal Reserve. The decision to slow down the rate hikes is intended to strike a balance between economic stability and monetary tightening.
The Federal Reserve will closely monitor incoming information to make informed decisions about future rate adjustments.
FED Acknowledges the Uncertainty
The interest rate projections also indicated a potential rate cut of 100 basis points to 4.6% in 2024.
Powell emphasized the need for confidence in inflation returning to 2% before considering rate cuts. Furthermore, he expressed that such confidence is unlikely to be achieved in the near future.
Moreover, Powell hinted that the rate cut forecast for next year is preliminary and contingent on inflation subsiding. The Fed chair acknowledged the uncertainty surrounding future rate cuts.
Consequently, the central bank will closely monitor inflation trends to determine the appropriate course of action.
Powell’s View on Economic Condition
Powell emphasized the Federal Reserve’s intention to avoid unnecessary actions and not do more than necessary. Most of the Federal Open Market Committee anticipates additional rate hikes, likely two more quarter-point increases this year.
However, Powell did not explicitly state his personal view on the timing and extent of rate adjustments. He did mention that he shares the general economic outlook of his colleagues.
The shared outlook includes expectations of modest economic growth, a slight increase in unemployment, and gradually decreasing inflation. Powell’s remarks indicate harmony among policymakers regarding the overall economic trajectory.
Capital Requirements of US Banks
Powell addressed multiple topics during his two-hour testimony before the Senate committee, including the Fed’s approach to tackling inflation.
Another topic of discussion was the possibility of higher capital requirements for the largest US banks. Powell clarified that banks with assets below $100 billion would not be affected in terms of these new proposals.
Furthermore, he emphasized that the capital requirements would primarily target the eight largest banks. Regional banks and banks with assets ranging from $100 billion to $250 billion would be included to a lesser extent.
Earlier this year, regulators seized regional banks, including Silicon Valley Bank, which fell into the latter category. Powell’s statements indicate that the proposed capital requirements would significantly impact the largest banks.
However, community banks are unlikely to be part of the proposal. The Fed’s intention is to focus the capital requirements on the banks with the greatest size and influence.
Powell’s testimony clarified the targeted approach the Fed plans to take regarding capital requirements.