Fed Powell "Most Agree on Additional Hikes This Year... No Decision in July" (Update)

"Almost all participants of the Federal Open Market Committee (FOMC) see additional rate hikes this year as appropriate." Jerome Powell, Chair of the U.S. Federal Reserve (Fed), which kept the benchmark interest rate unchanged, expressed concerns about inflation not falling as expected and indicated that further hikes will follow soon. However, regarding the possibility of resuming hikes immediately from the next meeting in July, he stated, "No decision has been made yet, and it will be a real-time meeting."

[Image source=Reuters Yonhap News]

At a press conference held immediately after the June FOMC regular meeting on the 14th (local time), Chair Powell said, "Despite raising the policy rate by 5 percentage points and rapidly shrinking the balance sheet, the full effect of tightening has not yet been felt." He added, "Almost all committee participants see additional rate hikes this year as appropriate to bring inflation down to 2%," and explained, "Future direction will be considered based on policy lags and data."

The Fed kept the federal funds rate unchanged at 5.0-5.25% at this meeting. After raising rates ten consecutive times from March last year through May, the Fed finally skipped a rate hike, marking its 'first pause.' However, through the dot plot, the Fed raised its year-end rate forecast from 5.1% (median) to 5.6%, suggesting the possibility of two additional hikes within the year. As Wall Street had already anticipated, this is a so-called 'hawkish pause' card, skipping a rate hike while signaling further increases.

Chair Powell’s press conference focused on reaffirming that this pause does not mean the end of monetary tightening and that further hikes will continue. Throughout the conference, strong concerns about inflation not falling as expected were confirmed. Powell said, "We are seeing the effects of tightening policies and demand in the most sensitive sectors of the economy, such as housing and investment," but predicted, "It will take more time for the full monetary policy restraint effect on inflation to materialize."

He diagnosed, "Disinflation in the housing sector is likely to be more persistent," and added, "The labor market also needs to ease. In the service sector, I think we are only seeing early signs of disinflation." He continued, "Core inflation is not moving in the direction the Fed wants. A decisive decline must occur," emphasizing, "There is still work to be done." When asked about describing the rate pause as a 'skip,' Powell said, "The June decision should not be called a skip."

Regarding the dot plot’s upward revision of the year-end rate forecast to 5.6%, Powell said, "It is a confirmed plan, but not a done deal," confirming that rate decisions will be made at each future FOMC meeting based on indicators. According to the newly released dot plot, out of 18 FOMC members, a majority of 9 expect year-end rates to be between 5.50% and 5.75%. One member projected 6.0-6.25%, and two members projected 5.75%-6.0%. This is interpreted as reflecting the still sticky core inflation and the overheating labor market that Powell pointed out. He said, "Price stability is important," and added, "Below-trend growth and labor market easing are necessary."

When asked whether rates will be raised at the July FOMC, he replied, "I want to say two things: first, no decision has been made, and second, it will be a real-time meeting." The next FOMC meeting will be held on July 25-26. He said, "We do not want to surprise the market or cause problems," and added, "When the July FOMC meets, decisions will be made based on real-time data." Regarding the basis for decisions when rate hikes resume, he described it as a "challenging, difficult decision," and said, "We will look at the overall situation in the economy and make judgments."

When asked whether rates need to rise to 6%, Powell emphasized that the labor market’s resilience and recovery surprised many analysts and said, "I cannot personally predict future rates." On the question of a soft landing, he repeated his previous answer, "I believe there is a path to a soft landing without high unemployment." He also confirmed, "No committee member expects rate cuts within this year."

Powell also addressed the fallout from the Silicon Valley Bank (SVB) collapse. He said, "The commercial real estate problem in the U.S. will not turn into a banking system crisis," but added, "Some banks have a high proportion of commercial real estate and may face significant losses. We are closely monitoring commercial real estate risks."

Meanwhile, through the Summary of Economic Projections (SEP) released that day, the Fed lowered its year-end personal consumption expenditures (PCE) inflation forecast to 3.2%, down 0.1 percentage points from before, while raising the core inflation forecast to 3.9%. The real gross domestic product (GDP) growth forecast for this year was raised to 1.0% from the previous 0.4%. The unemployment rate forecast for this year was lowered from 4.5% to 4.1%.

This content was produced with the assistance of AI translation services.