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Federal Reserve chair Jerome Powell arrives at a Congressional hearing on Tuesday. Photo: Al Drago\/Bloomberg via Getty Images<\/p>\n
The Federal Reserve will likely raise interest rates to a higher peak than previously thought and may consider ratcheting back up the pace of hikes in an effort to cool down a resilient economy, chair Jerome Powell told Congress on Tuesday.<\/p>\n
Why it matters<\/strong>: <\/strong>Powell's remarks underscore the importance of the incoming round of data on the labor market, inflation and consumer spending. If it suggests the economic activity is heating up, the Fed looks prepared to return to a more rapid pace of rate increases and push rates higher than expected.<\/p>\n What they're saying<\/strong>: "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," Powell said in his first testimony to lawmakers in over nine months.<\/p>\n Flashback<\/strong>: Data on the job market, consumer spending and inflation for January all pointed to a similar conclusion. Economic activity, once thought to be slowing, was hot at the beginning of the year. Revisions to previous months' data also showed that inflation hadn't slowed quite as much as first thought.<\/p>\n Financial markets<\/strong> have started to price in a higher level of peak interest rates \u2014 an about-face from recent months where investors thought the Fed would back off sooner than they said.<\/p>\n The big picture: <\/strong>Powell began two days of testimony to Capitol Hill on Tuesday and faced questions on the Fed's historic efforts to wrangle high inflation down to its 2% target. <\/p>\n In one heated exchange,<\/strong> Sen. Elizabeth Warren (D-Mass.) slammed Powell for the anticipated pain the Fed's moves will have on the labor market. Warren cited the Fed's projections from December that the unemployment rate could rise to 4.6% by the end of the year.<\/p>\n In another exchange,<\/strong> Sen. John Kennedy (R-La.) asked Powell whether recent government spending packages and growth of government debt stoked inflation.<\/p>\n\n
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