Fed Chair Jerome Powell said on Monday that US ‘inflation is much too high,’ his comments coming a few days after the central bank raised interest rates for the first time since 2018.
In his remarks, Powell noted that US inflation was “much too high.” However, so as help address the situation, the Fed would be looking at being as aggressive as possible, he said.
It’s a tone the Federal Open Market Committee (FOMC) adopted after last week’s March meeting where the Fed agreed to have six more rate hikes in 2022 amid 40-year high inflation in year-over-year dating back to 1982.
‘We will take the necessary steps’
Powell said that while the US labour market points to a strong recovery, inflation was likely to dampen this outlook. According to the Fed Chair, the central bank is prepared to take all necessary steps to address this.
“We will take the necessary steps to ensure a return to price stability,” he said.
He added that the need to get more aggressive on the rates would determine if they go above the 25 basis points seen last week. The same approach would apply to the Fed’s tightening, he explained.
“If we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”
'Nothing' stops a 50-basis point rate hike
Inflationary pressures attributable to the pandemic as well as the current geopolitical uncertainty around the Russia-Ukraine war have hampered supply-side recovery. The Fed is thus looking at inflation from both the perspective of supply-side relief and events around Russia’s invasion of Ukraine.
“An extended period of high inflation,” he noted, could push FOMC to act expeditiously. It’s a scenario that could see the Fed opt for a 50 basis point rate hike as soon as May, Powell said.
However, the decision to go that route has yet to be taken, a sentiment noted by CNBC finance editor Jeff Cox.
Asked what would stop the Fed from going 50 in May, Powell said "nothing." Then qualified that no decision has been made, also conceded that Fed inflation narrative heading into this year "has already fallen apart."
— Jeff Cox (@JeffCoxCNBCcom) March 21, 2022
US markets moved lower in the aftermath of Powell’s remarks. The S&P 500 shed intraday gains to end 0.04% in the red, while the Dow Jones Industrial Average and the Nasdaq Composite closed -0.58% and -0.40% respectively.
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