Federal Reserve Chairman Jerome Powell affirmed the central bank’s determination to reduce inflation and said on Thursday that positive rate hikes could happen as soon as next month.
“In my view, a slightly faster rate hike is appropriate,” said Powell while a member of the board of the International Monetary Fund. “I also think there needs to be something to be said about preloading any accommodation that one considers suitable. … I would say that 50 basis points will come out for the meeting in May. .”
Powell’s statements essentially met market expectations that the Fed would move away from its usual 25 basis point increase and move faster to tame inflation that is at its fastest pace in more than 40 years. The basis point is 0.01 percentage points.
At its March meeting, the Fed approved a 25 basis point move, but officials in recent days have said they feel the need to move faster with ongoing consumer inflation at an annual rate of 8.5%.
“Our goal is to use our tools to bring demand and supply back in sync, let inflation fall, and do so without decelerating leading to a recession,” Powell said. speak. “I don’t think you’ll hear anyone at the Fed say it’s going to be simple or easy. It’s going to be very difficult. We’re going to do our best to get there.”
“It is absolutely necessary to restore price stability,” he added. “Economics don’t work without price stability.”
As Powell said, market valuations for rate hikes are somewhat more drastic,
Expectations for a 50 basis point increase in May rose to 97.6%, according to CME Group’s FedWatch Tool. Traders are also pricing in a comparable additional run through year-end that will take the lending rate, which sets overnight borrowing for banks but is also tied to many consumer debt instruments, up 2.75%.
The Fed has resisted raising rates through 2021 even though inflation is well above the central bank’s 2% long-term target. Under one Policy framework to be adopted by the end of 2021The Fed said it would be content to let inflation rise above normal in the interests of achieving full employment including income, race and gender demographics.
Up until a few months ago, Powell and Fed officials insisted that inflation was “transient” and would dissipate as pandemic-related factors such as congested supply chains and overwhelming demand for commodities compared to reduced service. However, Powell said those expectations were “disappointing” and that the Fed had to change course.
“It could be real [inflation] the peak is in March, but we don’t know that, so we won’t take that into account,” he said. We’re really going to move up and quickly to more neutral levels and then really really tight… if that turns out to be the case when we get there. “
These will be Powell’s final remarks before the May 3-4 meeting of the Federal Open Market Committee, the interest rate-setting body. He is the latest Fed official to say Quick action is needed to reduce inflation.
Along with the rate hikes, the Fed is expected to begin reducing the amount of bonds it holds soon. The central bank’s balance sheet now stands at nearly $9 trillion, mostly consisting of Treasuries and mortgage-backed securities.
Discussions at the March meeting indicated that the Fed finally will allow to collect 95 billion dollars from bond maturity to monthly issuance.
Powell noted that other than malicious inflation, the US economy is “very strong”. He has described the labor market as “extremely tight, historically it is.”
Earlier in the day, he mentioned former Fed Chairman Paul Volcker, who brought inflation under control in the late 1970s and early 80s with a series of rate hikes that eventually led to a recession. Volcker “knew that to contain inflation and heal the economy, he had to be on the right track,” Powell said.
Fed Volcker finally brought the benchmark interest rate to nearly 20%; it is currently between 0.25% and 0.5%.
