The Federal Reserve may increase the scope of its interest rate hikes if the economy remains strong and high inflation persists, Fed Chair Jerome Powell told a Senate panel 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," Powell said. "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."
Experts expect the Fed to increase its key interest rate by a half-percentage point at its next meeting, which takes place March 21-22. Most recently, the Fed raised interest rates by 25 basis points in February. The move brought the federal funds rate to a targeted range of 4.5% to 4.75%, its highest level in 15 years.
If the Fed continues to increase rates, it may impact the interest rates tied to products like credit cards and mortgages.
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Inflation expected to remain high
Following a year marked by rising prices for basic goods, evidence suggests inflation may persist throughout 2023. Inflation increased by 6.5% year-over-year in December, based on the Consumer Price Index (CPI). That’s a slowdown from the 7.1% increase in November. However, the rate has not steered far from its June peak of 9.1%.
And many Americans are still struggling to make ends meet amid rising prices. More than half or 52% of Americans said inflation had impacted them "a lot," according to a November poll by YouGovAmerica and The Economist. In addition, more than half (62%) expected the cost of goods would continue to rise in 2023, according to a separate survey by the real-estate data company Clever.
"Not only do Americans expect inflation to continue in 2023, they also expect it to get worse," Clever said in its report. "Only 12% expect prices to decline."
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Recession fears persist
Even though the rate of inflation has slowed down in recent months, many Americans are still worried about a possible recession. In fact, the Fed’s interest rate hikes may push the country into a recession.
"Economic downturn is likely in the U.S. as most economic indicators currently point to a deceleration at the minimum and/or probable contraction," First National Bank of Omaha (FNBO) said in its 2023 Outlook report. "Aggressive Fed monetary tightening and higher interest rates may negatively impact economic growth."
Many Americans believe recession is coming. In fact, 56% of Americans believe the nation already is in a recession, according to the YouGov poll.
"Consumers are increasingly struggling to navigate the ongoing effects from the spike in prices last year by drawing on credit and savings," Morning Consult Chief Economist John Leer said in a statement. "With consumer demand likely to continue its downward trajectory, business investment is also likely to slow in the coming quarters, increasing the probability of a recession this year."
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