Federal Reserve Chair Jerome Powell told the Senate’s Banking, Housing and Urban Affairs Committee on Tuesday the interest rates will likely continue to rise to fight inflation.
This was Powell’s first visit before the committee since last June. When Powell last appeared before the committee, he had just increased the Federal Funds rate from 0.75%-1% to 1.5%-1.75%. After a series of interest rate increases, the rate now stands at 4.5%-4.75%, its highest mark in 15 years.
The interest rate hikes are an attempt to quell high inflation. Powell has said the Fed’s goal is to get inflation to 2% annually.
According to data released last month by the Bureau of Labor Statistics,the 12-month inflation rate dropped by 0.1% to 6.4%. Updated figures for February will be released next week.
"Over the past year, we have taken forceful actions to tighten the stance of monetary policy," Powell said. "We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do."
One reason Powell noted for the hikes was a strong job market. Unemployment in January reached a five-decade low, according to Bureau of Labor Statistics figures.
"Our overarching focus is using our tools to bring inflation back down to our 2% goal and to keep longer-term inflation expectations well anchored," Powell said. "Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done."
2023 US recession now expected to start later than predicted
The delay in the economists' expectations of when a downturn will begin follows a series of government reports that point to a robust economy.
The high federal interest rates has a profound impact on borrowers trying to buy a home. According to federal data, the 30-year fixed mortgage rate has more than doubled in the last year to 6.65%.
This has perhaps led to a decline in new home construction, as new builds dropped 27% from January 2022 to January, 2023,according to U.S. Census data.
Democratic members of the Banking, Housing and Urban Affairs Committee called upon the Biden administration last week to use the annual federal budget to increase lagging housing construction.
“In your Fiscal Year 2024 Budget Proposal, we urge you to maximize available federal resources – across all relevant agencies – to increase the supply of safe, accessible, affordable homes; lower rental housing cost burdens; and expand access to affordable homeownership so that families can build wealth and older adults, grandfamilies, and people with disabilities can live safely in their communities,” the senators wrote. “We also urge your Administration to undertake further efforts to ensure that the resources Congress has already made available are utilized to support communities’ comprehensive planning and economic development goals, including to address local affordable housing needs.”
