US Federal Reserve Hints at More Interest Rate Hikes Due to Higher CPI
The US Federal Reserve recently hinted at potential for further interest rate hikes, citing the increasing rate of consumer prices. In its semi-annual report on monetary policy, the Fed noted that prices have been rising because of the high demand for goods and services.
The Consumer Price Index (CPI) rose 0.4% in Jan 2021 – the highest level since Jan 2020. This indicates that consumers are in a better financial position than during the pandemic, leading to greater spending and higher inflation.
Fed Chair Jerome Powell noted that this is a positive development, as it could help support economic growth. He also pointed out that any further increases in the CPI could prompt a hike in the federal funds rate.
"We do note that inflation has been running moderately above our 2% longer-run goal," Powell said during a news conference Wednesday. "To be clear, though, any decision regarding further changes to our policy stance will be data dependent and will take into account a broad range of economic indicators."
This statement suggests that any future increase in rates may depend on how much higher inflation goes as well as other aspects of the economy. Powell noted that while higher rates could lead to a stronger dollar, it could also lead to slower economic growth and less investment.
The Fed’s most recent decision was to leave interest rates at their current near-zero levels for now. It noted that it would closely monitor developments in inflation and other indicators when deciding whether to alter its course of action.