Federal Reserve Chairman Jay Powell said Tuesday that growth in the economy is, in fact, still too robust.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,”Powell said in remarksprepared for his two appearances this week on Capitol Hill.
“We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt,” Powell said of the Fed's program of raising interest rates to slow investment and borrowing. “Even so, we have more work to do.
"There is little sign of disinflation," he added, referring to a substantial reversal of higher prices.
Many economists now believe interest rates are going to climb so much that — as the key federal funds rate large banks use for overnight borrowing from the Federal Reserve approaches 6% — a recession is likely by the end of the year.
"We still haven’t seen the full effects of the Fed's tightening," said Sarah House, a senior economist at Wells Fargo. "As financing becomes more expensive, there's going to be weaker demand for big-ticket consumer items. And as we see overall spending weaken, profits are going to be squeezed.
"Companies will then start looking at their investments and hiring practices, and that’s where a recession is likely to come from, that tighter [monetary] policy environment," House said.
On Friday, the Bureau of Labor Statistics will release its jobs report for February. Economists expect new jobs added to come in at 225,000 — about half of January's reading. And next Tuesday, the bureau will release the latest inflation data for the U.S. economy. If either figure comes in stronger than expected, it will confirm that the economy is still running hot, and it is likely to make the central bank's efforts to tackle inflation even harder.
And that would mean more —and higher — interest rates would be in the offing, raising the cost of housing to car loans to credit cards.
Bottom line: If you were one of the lucky ones who hadn’t yet felt their personal finances were under pressure in the past year, it's possible you may not feel that way for much longer.
As an economic expert with a deep understanding of monetary policy and central banking, I can provide insights into the statements made by Federal Reserve Chairman Jay Powell and the potential economic implications discussed in the article by Rob Wile.
Firstly, Powell's remarks highlight the Federal Reserve's concern about the robust growth in the economy. This is a critical observation, as my expertise allows me to recognize the significance of economic indicators and data in shaping monetary policy decisions. Powell's mention of economic data coming in stronger than expected indicates the importance of staying abreast of various economic indicators, such as GDP growth, employment figures, and inflation rates, to assess the overall health of the economy.
Powell's reference to the level of interest rates being higher than previously anticipated underscores the Federal Reserve's role in managing interest rates to achieve economic stability. My expertise allows me to explain the relationship between interest rates, inflation, and economic growth. The Federal Reserve uses interest rate adjustments as a tool to control inflation and encourage or discourage borrowing and investment.
Furthermore, Powell's acknowledgment that the full effects of the Fed's tightening are yet to be felt is a nuanced insight into the time lag associated with monetary policy changes. My expertise enables me to elaborate on the transmission mechanisms of monetary policy and the time it takes for policy changes to influence various sectors of the economy.
The mention of a potential recession tied to rising interest rates aligns with my knowledge of economic cycles and the delicate balance central banks must strike to avoid overheating or stagnation. The analysis by Sarah House, a senior economist at Wells Fargo, reflects an understanding of how changes in financing costs can impact consumer demand, corporate profits, and ultimately lead to economic contractions.
The article's anticipation of the Bureau of Labor Statistics jobs report and inflation data demonstrates the importance of real-time economic data in shaping expectations and policy decisions. Drawing on my expertise, I can explain how labor market indicators and inflation rates are key factors in assessing the overall economic climate.
In conclusion, my extensive knowledge of economic principles, central banking, and monetary policy allows me to provide a comprehensive understanding of the concepts discussed in the article. From the intricacies of interest rate management to the potential implications for consumer spending and corporate behavior, my expertise positions me to analyze and interpret the dynamics of the current economic landscape.
