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“U.S. economic growth slowed significantly last year, and
recent indicators suggest that economic activity has continued to expand at a
modest pace,” Federal Reserve Chairman Jerome Powell said at a banking forum in Spain on Thursday. Photo by Ken Cedeno/UPI | License Photo
June 29 (UPI) -- Higher lending rates have resulted in a slowdown in the economy and a decline in business investments, though efforts to cool consumer-level inflation have yet to yield significant results, Federal Reserve Chairman Jerome Powell said Thursday.
"U.S. economic growth slowed significantly last year, and recent indicators suggest that economic activity has continued to expand at a modest pace," Powell said at a banking forum in Spain on Thursday.
While marking an upward revision, the latest estimate of expansion in gross domestic product for the first quarter was 0.6 percentage point below the 2.6% growth rate during the fourth quarter of 2022.
Nevertheless, data show the consumer remains somewhat flush with cash, with disposable income jumping to $587.9 billion. More cash incentivizes consumer spending, which in turn supports inflation.
Consumer-level inflation is about half as high as it was last year, but is still about twice as high as the 2% target rate set by the Fed.
"Inflation has moderated somewhat since the middle of last year," Powell said. "Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go."
The Fed opted to keep its lending rates stable earlier this year, though Powell since then has suggested that two more rate hikes may be possible later this year. So far, the Fed has raised its policy rate by 5 percentage points, but that might not be enough.
"We see the effects of our policy tightening on demand in the most interest rate-sensitive sectors of the economy, particularly housing and investment," he said. "It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation."