(Bloomberg) — Federal Reserve Chairman Jerome Powell said the central bank will take “necessary steps” to reduce inflation even if it means raising interest rates more quickly than currently anticipated and eventually levels that slow down the economy in general.
Monetary policymakers raised the benchmark interest rate by a quarter point at their meeting last week, the first increase since December 2018, and signaled six more hikes of that magnitude this year, according to the median. If it is already 2.8% in 2023, most of the call will be neutral at 2.4%.
“If we conclude that it is appropriate to act more aggressively by raising the fed funds rate by more than 25 basis points in one or more meetings, we will do so,” Powell said Monday in prepared remarks for the National Association for Business. Economic Sciences. “And if we determine that we need to push monetary policy even further beyond common neutrality measures and take a more restrictive stance, we will do that as well.”
Powell, who reiterated and explained many of the key comments he made at his news conference last week, said the Russian invasion of Ukraine is compounding inflationary pressures by driving up prices for food, energy and other commodities.” at a time when inflation is already too high.”
He said that central banks typically look through event-driven commodity price shocks. But this time it will not be typical though.
“The risk is rising that a prolonged period of high inflation could drive long-term expectations uncomfortably higher, underscoring the need for the Federal Open Market Committee to act quickly, as it has outlined,” it added.
The comments suggest that Powell sees even higher inflation as a greater risk to the economy than any short-term slowdown resulting from consumption due to fuel costs and growing uncertainty.
Powell describes the economy as “very strong” and well positioned to handle higher interest rates. Fed officials last week forecast economic growth of 2.8% this year, but Russia’s invasion of Ukraine has put a new risk on their outlook.
Discussions over when and how quickly it will start to liquidate its $8.9 trillion balance sheet are still ongoing, monetary policymakers say, but a decision is expected soon. On that subject, Powell reiterated a comment from last week’s news conference, saying action to reduce the balance “could come as early as our next meeting in May, although that’s not a decision we’ve made.”
The Fed chairman said policymakers are now no longer taking significant easing of supply chain problems for granted and will look to “real progress” on inflation to guide interest rate decisions.
Despite the aggressive tone of Powell’s comments, he said he remains optimistic about the economy soft landing at a sustainable growth rate.
Powell says the Fed is ready to raise rates faster if needed (Correct)
More stories like this are available at bloomberg.com
©2022 Bloomberg LP