United States: According to Powell, the Fed is headed for two additional hikes

WASHINGTON – US Federal Reserve Chairman Jerome Powell on Thursday raised the possibility of raising rates twice before the end of the year, while a governor signaled the need for “further increases” after a hiatus.

“A strong majority (of Fed officials) believe it will be appropriate again, assuming the economy will act as expected (to raise rates) twice before the end of the year,” Jerome Powell told a Senate committee. He was already questioned on Wednesday by elected members of the Lok Sabha.

“We are committed to controlling inflation and a strong majority of the monetary group believes we are close, but we need to raise rates a little more,” he said.

However, as on the previous day, he felt that these additional increments should be made at a slower pace than before.

The agency’s governor, Michael Bowman, for his part, ruled that “further rate hikes are necessary to bring inflation back to the 2% target.”

At a conference organized by the central bank’s Cleveland regional branch, he said he “supports” the central bank’s decision on June 14 to leave rates in the 5.00-5.25% range, the first time since March 2022 after a pause of 10 hikes. .

“While monetary policy tightening has had some impact on economic activity and inflation to date, we have seen core inflation (excluding food and energy) stagnate since autumn 2022,” the governor noted.

Banking regulations

“I expect further rate hikes to achieve a sufficiently tight monetary policy stance to bring down inflation significantly and sustainably,” he added.

However, Michelle Bowman did not specify how far she thought it would be necessary to raise the key rate.

The next Fed meeting is July 25-26.

Jerome Powell also noted the evolution of banking regulations accelerating after the crisis that rocked the sector following the collapse of a Silicon Valley bank in early March.

And especially the capital requirements of banks, i.e. the liquidity that the bank needs to maintain at all times to meet risks and unexpected events, may increase.

“None of this should affect small banks,” the Fed chief assured.

The U.S. banking landscape is made up of local banks, small local or regional banks, along with large institutions.

After the financial crisis of 2008-2009 the wide-ranging international banking sector reforms called “Basel III” were launched to strengthen the strength of banks. Many steps have been taken, but some reforms still need to be finalized, especially in the United States.