Powell Says Further Rate Hikes Needed

Investors, responding to a much stronger-than-expected January employment report released Friday, now expect rate to rise to just above 5%, similar to what Fed officials forecast in December.

The Federal Open Market Committee raised their benchmark rate by a quarter point last week to a range of 4.5% to 4.75%, and said ongoing increases remain appropriate.

Powell has argued that easing pressure in the labor market is part of the answer to cooling off inflation in core services, excluding housing, a measure he has highlighted.

However, the market for labor continues jobs to be red hot, with non-farm payrolls increasing by 517,000 last month, the Labor Department reported Friday, while unemployment fell to 3.4%, the lowest rate since 1969.

Powell said the report “shows you why we think this will be a process that takes a significant period of time.”

U.S. central bankers were caught off guard by a rapid rise in prices in the final quarter of 2021. Inflation, by their preferred measure rose 5% in the 12 months through December, far above their 2% target.

While some measures of inflation have cooled in recent months, Powell told reporters last week that officials need “substantially more evidence” to be confident that inflation is on a downward path.

(Image: Bloomberg)