Fed’s Powell Discusses Rate-Rise Plans With Senate Lawmakers

WASHINGTON—Federal Reserve Chairman Jerome Powell returned to Capitol Hill on Thursday morning for the second of two days of testimony, this time before the Senate Banking Committee.

Before a House panel on Wednesday, Mr. Powell offered an unusually explicit preview of anticipated policy action when he said he would propose a quarter-percentage-point interest-rate increase at the central bank’s meeting in two weeks amid high inflation, strong economic demand and a tight labor market.

Mr. Powell said Wednesday that before Russia’s invasion of Ukraine last week, he expected the central bank would follow that initial rate rise with a series of increases this year.

“For now, I would say that we will proceed carefully along the lines of that plan,” Mr. Powell told the House Financial Services Committee. “We’re going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment.”

While he said it was too soon to say how the war and heavy sanctions imposed by the West against Moscow would influence the U.S. economy, he revealed a general urgency to continue tightening policy.

Mr. Powell effectively ended a debate in markets and among other Fed officials over whether they would lift rates from near zero this month with a larger half-percentage-point increase. At the same time, he laid the groundwork for the possibility of half-point increases this summer, pushing back against the idea that more traditional quarter-point increases represent a speed limit for the Fed.

Consumer prices in January rose 6.1% from a year earlier, according to the Fed’s preferred gauge. Excluding volatile food and energy categories, so-called core inflation rose 5.2%, close to a 40-year high. “This is strong, high inflation, and it’s very important that we get on top of it, and that’s exactly what we’re going to do,” Mr. Powell told lawmakers.

Mr. Powell has been nominated by President Biden to a second term leading the central bank, but he is awaiting Senate confirmation. His four-year term as chairman expired last month, but because a separate term on the Fed’s board of governors runs for six more years, he has been designated as the “chair pro tempore,” which is allowing him to serve until the Senate confirms him.

Democrats on the Senate Banking Committee have refused to bring up his nomination for a vote because Republicans aren’t allowing a separate vote on a different Fed nominee, Sarah Bloom Raskin, a former deputy secretary of the Treasury. Mr. Powell has won bipartisan support to serve a second term.

Ms. Raskin has been picked to serve as the Fed’s vice chairman for bank supervision, but Republicans are objecting to what they say has been a lack of candor about her work for a financial-services company in 2018.

Democrats and the White House say Ms. Raskin has answered extensive questions posed by lawmakers.

Republicans have indicated that in addition to Mr. Powell, they are prepared to support two other of Mr. Biden’s Fed nominees: governor Lael Brainard, who has been nominated to serve as Mr. Powell’s second-in-command, and economist Philip Jefferson. Mr. Biden has also nominated economist Lisa Cook to fill a vacant board seat with a term that lasts until January 2024.

Write to Nick Timiraos at [email protected]