Powell: Interest rates likely to be ‘higher than previously anticipated’

Here are three things to watch for in Fed Chair Jerome Powell’s testimony:

The state of the economy

Is the US economy heading towards a recession or not? It’s the question on most economists’ and investors’ minds.

The economy has become seemingly impervious to a string of large interest rate hikes by the Fed, and investors are waiting to see how much longer it can hold up.

So how will Powell answer questions about something that defies “simple” explanation? We’ll soon find out.

Rate hikes

The most pressing piece of information investors are looking for is how high the Federal Reserve will hike interest rates later this month and whether central bank officials expect to pivot away from their painful interest rate increases in the near future.

Former Treasury Secretary Larry Summers said on CNN Monday that the Fed will likely have to return to larger rate hikes to stave off inflation as the economy continues to grow.

He said his best guess would be for the fed funds rate to rise from its current range (4.5% to 4.75%) to 5.5%, but noted he “wouldn’t be amazed” if it were to hit 6%, given the uncertainties in the economy.

San Francisco Federal Reserve President Mary Daly also said recently she believes there’s more work to do to bring down inflation.

Will Powell join in and signal that more rate hikes are on the way?

Inflation goals

The United States is still a long way off from the Federal Reserve’s 2% inflation goal and economists have warned that it could take years to get there. The stickiness of inflation has caused some economists to question whether 2% is still the correct goal.

Powell has been steadfast in his devotion to that goal — but expect some lawmakers this week to question him on whether he’d accept potentially sinking the stock market or tanking the economy to get there.