'Long way to go': Federal Reserve Chair Powell points to more rate hikes

But a few big buyers in credit markets are calling Fed's bluff

US Federal Reserve Chair Jerome Powell on Wednesday told lawmakers that the fight against inflation still “has a long way to go” and despite a recent pause in rate hikes officials were in agreement borrowing costs would likely still need to move higher.

“Inflation has moderated somewhat since the middle of last year,” Powell said in remarks to the House Financial Services Committee in one of his regularly scheduled twice-yearly monetary policy updates to Congress. “Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 per cent has a long way to go.” Though Fed officials held off on raising interest rates at their meeting last week, Powell called that an exercise in prudence, allowing time to gather more information before deciding on further rate increases that Fed policymakers feel will be necessary by the end of the year.

Powell and nominees for three Fed Board seats were testifying on Capitol Hill on Wednesday, laying out over several hours of hearings a set of views that could broadly shape the economic conditions facing the country during a contentious presidential election campaign next year.

The themes sounded familiar: Inflation is too high and interest rates need to remain restrictive to fight it; the job market remains strong and may even need to weaken some for prices to cool; bank failures in March haven't rattled the financial system in a fundamental way.

But some of the biggest buyers in credit markets are calling the Federal Reserve’s bluff.

T Rowe Price Group, Allspring Global Investments and AllianceBernstein Holding LP are among investors seeking opportunities in longer-dated high-grade corporate bonds, reflecting bets that the peak in interest rates is nearing and a US recession would force policymakers to reverse course.