More rate hikes likely to cool off inflation, says Fed Chairman Jerome Powell

More rate hikes are likely in order to bring down inflation, said US Federal Bank Chairman Jerome Powell in an interview with billionaire businessman David Rubenstein on Tuesday. The Fed has set the inflation target at 2%, which is considered somewhat steep by experts, but Powell said that it was definitely achievable, though it would take more than a year to get there.

“The disinflationary process has begun. It has begun in a quarter of the economy. The services sector is not showing any disinflation. The message was that it has a long way to go. This process is likely to take a lot of time,” Powell said.

"It's probably going to be bumpy. And so we think that we're going to need to do further rate increases, as we said, and we think that we'll need to hold policy at a restricted level for a period of time," he said.

Noting that the labour market report was unexpected and very strong, he said, "It kind of shows you why we think this (bringing down inflation) will be a process that takes a significant period of time," he said, adding that the financial conditions are now more well aligned with the labour market.

Powell's statement comes a week after the Fed raised the interest rates by 25 basis points to a target range of 4.5%-4.75%.

In view of the spike in January labour market data that showed over 500,000 jump in new jobs created over the last month, the market expects more inflation and thus rate hikes. Experts believe that strong job growth will increase wages and as a result inflation too.

Powell conceded that the 19-member FOMC that decides the monetary policy did not expect such a strong growth in labour market.  He said that although the Fed has the tools to curb inflation, there are certain things that were beyond its control, especially global factors that affect the supply chain, commodities markets, etc.