(Bloomberg Opinion) — Federal Reserve Chairman Jerome Powell has given a clear signal that he is inclined to pause interest rate hikes next month, saying tighter credit conditions could mean the peak of the monetary policy will be lower.
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“We have come a long way in tightening and the policy stance is tight and we face uncertainty about the lagged effects of our tightening so far and about the extent of credit tightening due to recent banking stress,” Powell said in a Fed conference on Friday. in washington.
“Having come this far, we can afford to look at the data and the evolving outlook to make careful assessments,” he said, reading from prepared notes.
Investors cut bets on a rate hike next month to around 17% after Powell’s comments compared with 33% before he spoke.
Officials raised rates by a quarter of a percentage point earlier this month to a target range of 5% to 5.25% and signaled they may pause. They will meet on June 13 and 14.
The US central bank has raised interest rates 5 percentage points in just over a year, waging its most aggressive tightening campaign in decades to quell high inflation.
Some officials have suggested that the Fed should keep raising rates because they have not seen convincing evidence that price pressures are cooling fast enough.
But Powell said he’s not in that camp, citing economic headwinds stemming from the recent collapse of four regional US banks.
“While financial stability tools have helped calm conditions in the banking sector, developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation,” Powell said. “As a result, our policy rate may not need to increase as much as it otherwise would to achieve our goals. Of course, the extent of that is very uncertain.”
In March, policymakers projected rates to peak at 5.1% based on their median outlook, the level reached earlier this month, though seven other officials forecast they would need to rise further. Forecasts will be updated in June.
The conference, held at the Fed headquarters in Washington, honors the memory of former Fed economist Thomas Laubach, who died in 2020 at the age of 55.
(Updates with more comments from Powell from the eighth paragraph.)
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