The Federal Reserve will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the "totality" of incoming information suggests tougher measures are needed to control inflation, Fed Chair Jerome Powell told U.S. lawmakers on 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," the U.S. central bank chief said in his semi-annual testimony before the Senate Banking Committee.
While some of that unexpected economic strength may have been due to warm weather and other seasonal effects, Powell said it may also be a sign the Fed needs to do more to temper inflation, perhaps even returning to larger rate increases than the quarter-percentage-point steps officials had been intending to use going forward.
"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 said.
The comments were Powell's first since inflation unexpectedly jumped in January, and marked a stark acknowledgment that the "disinflationary process" he spoke of repeatedly in a Feb. 1 news conference was not unfolding smoothly.
Senators responded with a broad set of questions and pointed criticism around whether the Fed was diagnosing the inflation problem correctly and if price pressures could be tamed without significant damage to economic growth and the job market.
(With Reuters inputs)
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