Fed Chair Powell testifies before Senate – rates need to be higher

In the March 2023 Congress testimony, Fed Chair Powell said based on rising inflation data and high jobs growth data, interest rate needs to go higher. Inflation is running at 5.4% and is too far from the 2% target. More interest rate hike will be needed to stop inflation. Powell says inflation has a psychological aspect to it. If consumers and businesses believe inflation is going up, they will act in a way and make it happen. So it’s important to keep it low and globally the acceptable range is 2%. At that rate, consumers have faith prices will not go up and price stability is attained. Each recession is different that the ones in the past and this one is unlike any other. In previous recessions, rising interest rate increase unemployment. Powell does not believe rising unemployment is inevitable. Given how strong the labor market is, Powell thinks the rising interest rate this time will reduce the excess job demand and he believes it’s still possible to keep unemployment at current level as interest rate goes up.