If measures of the U.S. economy keep coming in hot, as they did in January, the Federal Reserve will likely have to raise interest rates even higher than it has already signaled — and keep them there longer — Chair Jerome Powell will likely warn in testimony to Congress on Tuesday
that they would favor raising the Fed's key rate above the 5.1% level they had projected in December if growth and inflation stay elevated. When the Fed raises its key rate, it typically makes mortgages, auto loans, credit card rates and business lending more expensive. It's a trend that can slow spending and inflation but also risks sending the economy into a recession.
Inflation, as measured year over year, has slowed from its peak in June of 9.1% to 6.4%. But its progress stalled in January: The Fed's preferred measure of price increases rose from December to JanuaryPowell has noted that so far, most of the slowdown in inflation reflects an unraveling of supply chains that have allowed more furniture, clothes, semiconductors and other physical goods to reach U.S. shores.
But the prices of many services — from dining out to hotel rooms to haircuts — are still rising rapidly, with little sign that the Fed's rate hikes are having an effect. Fed officials say the costs of those services mainly reflect rising wages and salaries, which companies often pass on to their customers in the form of higher prices.
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