Fed Chairs Hearing: Powell recommends US rate hike

Federal Reserve Chairman Powell has called for a 0.25 percentage point hike in interest rates this month. Powell said so at a congressional hearing.

The official interest rate decision by the US Federal Reserve will not be made for another two weeks. But their boss, Jerome Powell, made it clear today ahead of a hearing in the US Congress: Because of the high inflation, he considers an interest rate hike to be appropriate – and thanks to the strong US labor market, also justifiable. It would be the first rate hike since 2018.

Flexible action required

Powell warned that the economy could develop in unexpected ways in the face of the Ukraine war; the central bank must therefore be able to react flexibly. It is to be feared that the sanctions against Russia will lead to rising energy prices, further supply bottlenecks and thus further rising inflation.

The rate of inflation in the USA is already more than seven percent – the highest it has been in 40 years. The goal of the monetary authorities is actually an inflation rate of only two percent.

Powell wants fewer government bonds

Powell left it open how quickly and how much the US Federal Reserve intends to raise interest rates. Some US central bankers are calling for a 0.5 percentage point reduction, while others are calling for the usual 0.25 percentage point.

Powell also announced that he would melt down the huge mountain of US Treasury bonds over the course of the year – the pandemic has now added up to almost nine trillion US dollars.

Powell is taking questions from members of the US Congress today and tomorrow. It is about extending his term of office by four years.