Federal Reserve Chair Jerome Powell told lawmakers Wednesday the central bank would keep its options open for how much higher to hike interest rates at the next policy meeting after opening the door Tuesday to the potential for a 50-basis point rate hike.
"We have not made any decision," he told the House Financial Services Committee, saying key reports on employment and inflation would govern any moves.
The remarks came a day after he told the Senate Banking Committee that, "we would be prepared to increase the pace of rate hikes" if the data supported it. That spurred traders to price in a higher chance of a 0.50% hike than a 0.25% increase later this month.
“We're going to be looking at the totality of data," Powell said Wednesday during questioning from House members. "We are not on a preset path," he added. Powell said the Fed wants to see the upcoming employment report Friday, along with key inflation reports on the consumer and producer price indexes, before making a judgment.
On Wednesday, the Dow dropped 0.18%, while the S&P 500 rose 0.14%, and the Nasdaq rose 0.40%.
When asked by Democratic Rep. Ayanna Pressley (D, Mass.) whether the Fed would pause interest rates to avoid a recession, the chairman called it a serious question and noted that he wouldn’t say yes or no. The Fed, he said, is not "seeking a recession."
Powell also said the era of low interest rates is likely over. "Now, we have the 10-year [Treasury yield] back close to 4%," said Powell. "And I think, we need to be careful not to assume that these secular low, longer term rates, will continue indefinitely because it doesn't look likely now."
Democrats, including Democratic Ranking Member Maxine Waters (D, CA) asked him to comment on the prospect of a U.S. default if Congress is not able to raise the debt ceiling. Powell warned that the Fed can’t protect the economy from brinksmanship or a default.
"No one should assume that the Fed can protect the economy from the non-payment of the government's bills, let alone a debt default, which I don't think will happen, but no one should think we have the tools to protect against the effects of that," said Powell.
When asked whether the Fed would accept a trillion-dollar coin to avoid a debt default, Powell said there are no rabbits to be pulled out of hats and that would be a "rabbit coming out of a hat."
House Republicans expressed concerns about reviewing and potentially increasing capital requirements for banks. Patrick McHenry, the chairman of the House committee, questioned the motivation of a "holistic review" of these requirements from the Fed’s Vice Chair of Supervision Michael Barr, saying the Fed shouldn’t operate in the shadows when the regulation in question can have broad and significant economic effects. McHenry also accused the Fed of laying the groundwork for a new climate policy.
"The Fed needs to stick to its knitting," said McHenry. "I agree there is concern for many that the Fed is picking up new needles and knitting partisan sweaters at such a precarious time for our economy here at home in the global economy. That would be a mistake."
Powell’s comments Wednesday were his last before the Fed’s policy meeting in two weeks.
Read the latest financial and business news from Yahoo Finance