UPDATE 2 - Fed chair says inflation 'moderated somewhat' since mid-2022, but 'pressures run high'

ADDS MORE COMMENTS FROM POWELL, DETAILS THROUGHOUT

By Ovunc Kutlu

ISTANBUL (AA) - US Federal Reserve Chair Jerome Powell said Wednesday that inflation has "moderated somewhat" since mid-2022 but "pressures run high."

"We have raised interest rates by 5% in little more than a year," he said in a news conference after the Fed made a 10th rate hike to fight record inflation that climbed to a 40-year high last June.

Powell's comments came after the Federal Open Market Committee (FOMC) unanimously decided to raise the target range for the federal funds rate to between 5% and 5.25% -- its highest since August 2007.

"We are seeing the effects of our policy tightening on demand and the most interest rate sensitive sectors of the economy, particularly housing and investment. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation," he said.

Powell admitted that it is likely the American economy will “face further headwinds" from tighter credit conditions, which has been ongoing for the past year due to the Fed's policy actions.

"The strains that emerged in early March appear to be resulting in even tighter credit conditions for households and businesses," he said amid a recent banking crisis in the US, which saw the rapid demise of four banking institutions in recent weeks.

Powell stressed that tighter conditions are likely to weigh on economic activity, hiring and inflation, but said the extent of their effects "remains uncertain."

He said the Fed's future policy actions will depend on "how events unfold" and the FOMC will take into account the effects of cumulative monetary tightening on economic activity, inflation and developments in those two areas.

"We will make that determination meeting by meeting, meaning based on the totality of incoming (macroeconomic data) and the implications of the outlook of economic activity and inflation," he said.

But he warned that the FOMC is prepared to do more if greater monetary policy restraint is warranted until the Fed brings inflation down to its goal of 2%.

"A decision to pause (rate hikes) was not made today. We will be approaching that question in the June meeting," Powell said.

The Fed chair, however, argued that slowing down the rate hikes was "the right move."

"I think it enabled us to see more (macroeconomic) data and it will continue us to so," he said.

Powell stressed that the Fed always had to balance "not doing enough" against "not getting inflation under control," while there has always been the risk of not slowing down economic activity too much due to the rate hikes.

His comments came as the Fed's unprecedented monetary tightening cycle, which included a total of 10 rate hikes in the past 12 months, raised caution about the possibility of a recession in the world's largest economy.

"The assessment of the extent to which additional policy firming would be appropriate is going to be an ongoing one, meeting by meeting, and we are going to be looking into factors ... Credit tightening is a different thing, but translating into rate hikes in uncertain," he explained.

Powell noted that the FOMC's forecast was about "a mild recession" in which the rise in unemployment would be "smaller-than-typical."

Amid the recent bank fallouts, Powell said it is the Fed's policy that it "does not want large banks doing big acquisitions," while he defined the recent buyout of the First Republic Bank by JPMorgan Chase as "an exception" and "a good outcome for the (US) banking system."

The troubled US-based First Republic Bank was closed Monday by US regulators, while its assets are set to be acquired by JPMorgan Chase.