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WASHINGTON, D.C. — Interest rates might be higher than previously anticipated. That’s what the Federal Reserve chair told a group of Senators. This warning follows a series of economic indicators that show the economy is running hotter than expected despite recent actions from the Fed.
When the Federal Reserve raises interest rates, it slows down consumer spending on big purchases and can also impact local business. The Federal Reserve chair, Jerome Powell, addressed a handful of Senators on the banking committee. He said the central bank is prepared to react to recent signs of economic strength by raising interest rates higher than previously anticipated. Powell said they will closely monitor economic data on this that is set to be released relatively soon but explained that fighting inflation has been tough. Data shows inflation did calm down in the past few months but went up in January. Consumer spending and job growth also went up too. Powell said bringing inflation down will be a long and bumpy road.
“We continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to two percent over time,” said Powell.
Last year, inflation rates were up higher than normal so buying things like groceries and everyday purchases put a strain on people’s wallets. To combat inflation, the Fed raised interest rates last year at the fastest pace in decades. However, increasing rates comes at a cost for everyday Americans and their businesses. When the Fed raises interest rates it slows spending on big credit-based purchases like homes and cars and can discourage businesses from expanding on borrowed money. In a report from the New York Times, data shows the job market has been very resilient to the fed’s moves and we’re seeing some of the lowest unemployment rates since the late 60s, as well as rapid hiring and pay gains.
While the Federal Reserve is designed to be independent from politics, the White House says they won’t comment on their policies but they were asked about Powell’s testimony on the Hill:
“We’re seeing inflation start to moderate, inflation has come down than where it was almost a year ago when you look at it more globally and look at it a year ago we have seen inflation moderate,” said White House Press Secretary Karine Jean-Pierre. “And this is happening while the president has continued to grow the economy.”
Democratic Senator Elizabeth Warren (D- MA) expressed concern that the fed hiking up rates could potentially lead to a lot of job losses. But Powell fired back, saying they are taking the only measures we have to bring inflation down.
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