Jerome Powell, chairman of the U.S. Federal Reserve System (Fed), hinted at the possibility of raising the benchmark interest rate twice in the future to curb inflation (price inflation). In response to Powell’s hawkish remarks, the yen’s value per dollar broke the 142 yen level during the day, hitting a seven-month low.
Chairman Powell attended the U.S. House of Representatives’ Financial Services Committee and said, “Considering how far we have come, a rate hike is reasonable, but it is better to go at a slower pace.” The remarks came a week after the Fed froze its key interest rate at a regular meeting of the Federal Open Market Committee (FOMC) on the 14th.
Regarding the rate freeze this month, Powell explained that it is a temporary moratorium, not a “pivot” that changes direction, and said, “I expect almost all FOMC members to raise interest rates to some extent by the end of this year.” In addition, he admitted in congressional testimony that if the economy proceeds as expected, it is a “pretty reasonable guess” to carry out two baby steps (a 0.25 percentage point increase in the benchmark interest rate at a time) by the end of the year. There are four FOMC schedules left this year to determine the benchmark interest rate: July, September, November, and December.
Referring to various economic indicators, including the core Consumer Price Index (CPI) growth rate of 5.3% year-on-year in May, he diagnosed, “Inflation has eased somewhat since the middle of last year, but inflation pressure is still high and the process of returning inflation to 2% has a long way to go.”
In the aftermath of Powell’s remarks, which confirmed the possibility of an additional rate hike within this year, the yen’s value per dollar once fell below 142 yen. According to Bloomberg, the yen per dollar fell to 142.36 yen during the day in the Tokyo foreign exchange market on the 22nd after Powell’s remarks were reported. It is the lowest since November 21st last year (142.14 yen). It remained at the 141 yen level just before his remarks came out. The difference in monetary policy between the U.S., which hinted at further tightening, and Japan, which adheres to monetary easing, has highlighted the yen’s value. “The yen’s weakness will only be reversed by the Bank of Japan’s policy shift or by a fall in U.S. interest rates,” Kit Jergs, a Societe Generale strategist, told Bloomberg.