In a major shift from prior statements made by Federal Reserve officials, Chair Jerome Powell recently indicated that further rate hikes were not out of the question. In an address last week, Powell strongly encouraged the idea of continued gradual rate hikes. His comment, “I would not want to speculate on rate cuts at this point — that would be premature,” was a clear departure from the previously assumed it-will-never-happen notion that further rate hikes just wouldn’t happen.
The reason for the shift is the current state of the United States economy, which is booming. According to the latest economic data, unemployment is at its lowest level since 2000, GDP growth is at its highest since 2014, and consumer confidence is at its highest since 1998. With the economy doing so well, it is not surprising that Powell has indicated that further rate hikes are a real possibility.
The primary reason for the hikes is to guard against inflation. A booming economy is good news, but it can also lead to a situation where prices for goods and services begin to accelerate and the cost of living goes up. This could lead to a situation where many people find themselves unable to keep up with their expenses, resulting in an extended period of economic stagnation. To prevent this, the Federal Reserve will continue to monitor the economy closely and, if necessary, raise rates.
At this stage, it is premature to speculate on what might happen in terms of further rate hikes. While there is no guarantee that Powell and the Federal Reserve will act, the fact that they have indicated that further rate hikes are possible indicates their commitment to keeping inflation in check. Time will tell how this pans out.