Washington, D.C. – Federal Reserve chairman Jerome Powell vowed that he and his fellow policymakers would “keep at” their battle to beat down inflation, as the United States central bank hiked interest rates by three quarters-of-a-percentage-point for a third straight time and signalled that borrowing costs will keep rising this year.
In a sobering new set of projections, the Fed foresees its policy rate rising at a faster pace and to a higher level than expected, the economy slowing to a crawl, and unemployment rising to a degree historically associated with recessions.
Powell was blunt about the “pain” to come, citing rising joblessness and singling out the housing market, a persistent source of rising consumer inflation, as being likely in need of a “correction”.
On Wednesday, the National Association of Realtors reported that U.S. existing dropped for a seventh straight month in August.
The United States has had a “red hot housing market … There was a big imbalance,” Powell said in a news conference after Fed policymakers unanimously agreed to raise the central bank’s benchmark overnight interest rate to a range of 3.00% to 3.25%.
“What we need is supply and demand to get better aligned,” Powell said. “We probably in the housing market have to go through a correction to get back to that place.”
That theme, of a continuing mismatch between U.S. demand for goods and services and the ability of the country to produce or import them, ran through a briefing in which Powell stuck with the hawkish tone set during his remarks last month at the Jackson Hole central banking conference in Wyoming.
Recent inflation data showed little to no improvement despite the Fed’s aggressive tightening – it also announced 75-basis-point rate hikes in June and July – and the labour market remains robust with wages increasing as well.
The federal funds rate projected for the end of this year signals another 1.25 percentage points in rate hikes to come in the Fed’s two remaining policy meetings for the year, a level that implies another 75-basis-point increase in the offing.
“The committee is strongly committed to returning inflation to its 2% objective,” the central bank’s rate-setting Federal Open Market Committee indicated in its policy statement after the end of a two-day policy meeting.
The Fed “anticipates that ongoing increases in the target range will be appropriate”.
