If the evidence continues to point to a robust economy and persistently high inflation, Federal Reserve Chair Jerome Powell told a Senate panel Tuesday that the Fed could increase the size of its interest rate hikes and raise borrowing costs to higher levels than previously projected.
“The most recent economic data have come in stronger than expected, implying that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell told the Senate Banking Committee. “If the totality of the data suggests that faster tightening is warranted, we would be willing to accelerate rate hikes.”
Powell’s remarks reflect a significant shift in the economy since the Fed’s most recent policy meeting in early February. The central bank raised its key rate by a quarter-point at that meeting, following a half-point increase in December and four three-quarter-point hikes before that.
The Fed chair’s remarks on Tuesday increased the likelihood that the Fed will raise its benchmark rate by half a percentage point at its next meeting on March 21-22. The central bank has raised its key rate, which affects many consumer and business loans, eight times in the last year.
Fed officials will also issue updated forecasts for how high they expect their benchmark rate to eventually reach at their upcoming meeting. They predicted in December that it would reach 5.1% later this year. Powell’s most recent remarks suggested that the Fed could raise interest rates even further. Investors now expect it to rise another half-point, to 5.6%, according to futures pricing.
The Fed chair’s warning of potentially more aggressive actions dampened the mood on Wall Street, where stock prices fell in the hours following Powell’s speech. The broad S&P 500 index was down 1.6% in late-day trading.