The Federal Reserve could increase the size of its interest rate hikes and raise borrowing costs to higher levels than previously projected if evidence continues to point to a robust economy and persistently high inflation, Chair Jerome Powell told a Senate panel Tuesday.
“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 testified to the Senate Banking Committee. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
Powell’s comments reflect a sharp change in the economic outlook since the Fed’s most recent policy meeting in early February. At that meeting, the central bank raised its key rate by just a quarter-point, downshifting after a half-point rise in December and four three-quarter-point hikes before that.
The Fed chair’s remarks Tuesday raised the real possibility that the Fed will increase its benchmark rate by a half-percentage point at its next meeting March 21-22. Over the past year, the central bank has raised its key rate, which affects many consumer and business loans, eight times.
At their forthcoming meeting, Fed officials will also issue updated forecasts for how high they expect their benchmark rate to ultimately reach. In December, they forecast that it would reach about 5.1% later this year. Powell’s latest remarks suggested that the Fed could raise it even higher. Futures pricing indicates that investors now expect it to rise a half-point further, to 5.6%.