Federal Reserve Chairman Jerome Powell set the stage for the central bank to raise interest rates in testimony at his Senate confirmation hearing Tuesday.
“The economy has rapidly gained strength despite the ongoing pandemic, giving rise to persistent supply and demand imbalances and bottlenecks, and thus to elevated inflation,” he said in prepared remarks to the Senate Banking Committee.
Consumer prices soared 6.8% in the 12 months through November, the biggest increase in 39 years.
“We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing, and transportation,” Powell said.
“We will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”
Last week’s minutes of the Fed’s December policy meeting indicated central bank officials might need to raise interest rates faster than expected. That led many economists and investors to predict the Fed will begin rate hikes in March.
The CME Fed Watch Tool indicates that federal funds traders see an 80% chance for a move in March.
As for Powell, he also reiterated that the Fed must deal with the impact of the Covid pandemic. “We can begin to see that the post-pandemic economy is likely to be different in some respects,” he said. “The pursuit of our goals will need to take these differences into account.”
The Senate is expected to easily confirm Powell to a second term as Fed chairman. His first term ends next month.