Powell Testimony: Inflation Fight Has 'Long way To Go', More Rate Hikes Needed

Federal Reserve Chairman Jerome Powell will tell lawmakers Wednesday that the central bank's inflation fight has a "long way to go", adding that further interest rate hikes will likely be needed in order to tame consumer price pressures over the coming months.

In prepared remarks for his semi-annual appearance before Senate Banking Committee on Capitol Hill, which is set to begin at 10:00 am eastern time, Powell added that the nation's banking system remains "sound and resilient", but added that the impact of some regional bank failures will likely have an impact on credit conditions that could weigh on hiring, economic activity and inflaiton.

Nonetheless, with headline CPI running at 4%, a pace that is double the Fed's 2% target, Powell will tell lawmakers that more rate hikes are needed between now and the end of the year, but said decisions will be made on a meeting-by-meeting basis based on incoming data.

"My colleagues and I understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2%," Powell said. "Price stability is the responsibility of the Federal Reserve, and without it, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all."

"Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go," he added. "Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets."

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U.S. stock futures were little-changed in the wake of Powell's prepared remarks, with contacts tied to the S&P 500 indicating a 2 point opening bell decline and those linked to the Dow Jones Industrial Average suggesting a 60 point pullback.

Benchmark 10-year Treasury note yields were marked 2 basis points higher at 3.754% while 2-year notes gained 2 basis points to 4.726%. The U.S. dollar index, meanwhile, was marked 0.12% higher at 102.6747 against a basket of six global currency peers.

Last week, the Fed kept the federal-funds rate on hold at between 5% to 5.25%, snapping a streak of 10 consecutive increases that lifted it to the highest since 2007, but lifted the upper-end of its near-term rate forecast, suggesting the central bank still feels tighter financial conditions are needed to combat the current elevated levels of inflation.

In the Fed's summary of economic projections, also known as the 'do plots,' which indicates the prospective forecasts of voting and nonvoting members of the Federal Open Market Committee, the median view of the federal-funds rate by year's end was marked 0.5 point higher, at 5.6%, compared with the March release.

That suggests the potential for at least two more rate hikes between now and December, the Fed's last policy meeting of the year, although Fed Chairman Jerome Powell would not confirm whether a decision for the July meeting had been made.

CME Group's FedWatch now suggests a 79.4% chance that the Fed will lift rate by 25 basis points (0.25 percentage point), to between 5.25% to 5.5% at its next policy meeting in July, but bets on a follow-on rate cut have essentially disappeared, and traders are pricing in a 50/50 chance the Fed will be forced to cut rates between now and the end of the year.