Chairman Jerome Powell said on Monday that the Federal Reserve would raise its benchmark short-term interest rate faster than expected and high enough to dampen growth and hiring, if it decided it was necessary to slow inflation. galloping.
WASHINGTON — Chairman Jerome Powell said Monday that the Federal Reserve would raise its benchmark short-term interest rate faster than expected and high enough to dampen growth and hiring, if it decides it is necessary to slow the economy. galloping inflation.
At their meeting last week, Fed officials raised their key rate from near zero to a range of 0.25% to 0.5% and forecast they would make six more one-quarter hikes. points this year.
Powell said that if necessary, the Fed would be willing to raise rates a half point more aggressively in several meetings and push rates into “tight” territory that would limit growth. The Fed has not raised its key rate by half a point since May 2000.
“We will take the necessary steps to ensure a return to price stability,” he said in a speech at an economic conference. “In particular, if we conclude that it is appropriate to act more aggressively by raising the federal funds rate by more than a quarter point at a meeting or meetings, we will do so.”
The Fed is under pressure from widespread criticism that it reacted too slowly to a price spike that catapulted inflation to four-decade highs. At their meeting last week, Fed officials projected they would hike rates four more times in 2023 and inflation would slow to 2.7% by the end of this year.
At the same time, policymakers projected that the economy would remain resilient enough to continue growing and that the unemployment rate would fall from its current level of 3.8% to 3.5%, matching a 50-year low reached. before the pandemic.
Some economists argue that such a painless outcome – what they call a “soft landing” – is unrealistic, given the challenges facing the economy, including the potential for deeper economic disruption from the invasion. of Ukraine by Russia. The war has already raised the price of oil, wheat, nickel and other vital commodities.
But Powell said the Fed has already made soft landings.
“I think the historical record offers grounds for optimism,” he said. “Soft, or at least soft, landings have been relatively common in American monetary history.”
Powell’s remarks followed a flurry of comments from officials regarding Fed policy since last week’s meeting, all pointing in a hawkish direction. (“Hawks” generally support higher interest rates to stave off inflation, while “doves” generally prefer lower rates to support hiring).
Also on Monday, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said controlling inflation “is the main concern I have for 2022.”
Bostic also said he expects the Fed to raise rates a total of six times this year, and twice more in 2023. That’s a more dovish approach than most of his colleagues. But he stressed that this was mainly due to the extreme uncertainty currently surrounding the economy. If more rate hikes were needed to slow inflation, he would support them, he said.
“We’ve been in an emergency situation for a long time,” Bostic said. “We are past that now from an economic point of view. We need to move quickly to neutrality,” he said, referring to an interest rate level that neither encourages nor slows economic growth.