Fed’s Powell backs 25 basis point rate hike

Despite the ongoing conflict in Ukraine, Federal Reserve Pro Tempore Chairman Jerome Powell plans to raise rates by 25 basis points this month.

The first rate hike is expected in just under two weeks, coinciding with March’s Federal Open Markets Committee meeting, scheduled for March 15-16.

President Joe Biden also outlined a plan to reduce inflation, including cutting prescription drug and childcare costs, and creating affordable housing, during the State of the Union address. . Biden said he would “go into more detail later.”

In the short term, however, the federal government’s main toolkit for reducing inflation is the Federal Reserve’s rate cut. That was the subject of a marathon House Financial Services Committee hearing on Wednesday.

In the more than three-hour hearing, Powell said he would “support a 25 basis point rate hike.”

He also said the central bank may act even more aggressively, raising rates by more than 25 basis points, if inflation remains elevated. Analysts had previously predicted rate hikes of up to 50 basis points in March.


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Lawmakers also questioned Powell about the impact of the Ukraine conflict on Fed policy.

Economists have said the conflict in Ukraine could lead to a near-term reduction in mortgage rates as investors flock to safe-haven assets such as mortgage-backed securities and bonds. But the longer-term inflation caused by the conflict will cause mortgage rates to rise.

Powell, in his testimony, said that “the near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, sanctions, and future events remain highly uncertain.”

“To do appropriate monetary policy in this environment, you have to recognize that the economy is moving in unexpected ways,” Powell said.

Powell also answered lawmakers’ questions about housing affordability. While housing policy is not the Fed’s purview, inflation control is part of its dual mandate. Since housing costs make up a large part of the indexes that measure inflation, the Federal Reserve is concerned about rising house prices.

Home prices, Powell said, will rise more slowly as the federal funds rate rises, taking mortgage rates with it. But he doesn’t expect home prices to return to pre-pandemic levels, he said.

“We’re not going back to pre-pandemic levels,” Powell said. “We’re not trying to lower prices, we’re trying to limit future prices.”

Some members of Congress have also commented on the future of Powell’s renomination at the Federal Reserve, which hit a snag two weeks ago when members of the Republican Senate Banking Committee refused to show up for a vote.

Republican members blamed the debacle on Democrats for refusing to split the slate of candidates to allow some of the nominees to be confirmed. Republican members said they would not allow the vote until Sarah Bloom Raskin answers questions about business dealings.

Biden, in his speech Tuesday night, urged lawmakers to press ahead with nominations in light of concerns about rising prices.

“And while you’re at it, confirm my nominees for the Federal Reserve, which plays a critical role in fighting inflation,” Biden said.

Powell will also testify before the Senate Banking Committee on Thursday.

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