Hiking events

Will not hesitate to keep rates hike until inflation is brought under control: Fed Chairman

Federal Reserve Chairman Jerome Powell, in his most hawkish remarks yet, said the US central bank would continue to raise interest rates until there is “clear and convincing evidence.” “as inflation recedes.

“What we need to see is inflation coming down in a clear and compelling way, and we’re going to keep pushing until we see that,” Powell said Tuesday during a Wall Live event. StreetJournal. “If it involves going beyond the widely understood levels of ‘neutral’, we wouldn’t hesitate at all to do so.”

The Fed chairman repeatedly stressed the need to rein in the highest inflation in decades during the roughly 35-minute interview, calling price stability the “foundation of the economy” and acknowledging that it was hard to get there – including a slight increase in the unemployment rate – was a cost worth paying to get there.

Powell and his colleagues on the central bank’s Federal Open Market Committee voted to raise their benchmark rate by half a percentage point at a policy meeting earlier this month, and the then-president said suggested to reporters that hikes of similar magnitude would be on the table at their next two meetings in June and July. He repeated this guidance on Tuesday, while adding that the evolution of inflation in the short term would be a key determinant of the magnitude of the movements to come.

If the Fed doesn’t see clear and convincing evidence of diminishing inflationary pressures, “then we’ll have to consider acting more aggressively,” Powell said. “If we see that then we can consider moving to a slower pace.” The target range for the benchmark federal funds rate is currently between 0.75% and 1%. The FOMC will then meet on June 14-15.

US stocks rallied to session highs as investors weighed Powell’s comments, while Treasury yields climbed, led by more politically sensitive shorter maturities.

“I think it was more hawkish,” said Derek Tang, an economist at LH Meyer, a political analysis firm in Washington. “He suggests that this ’50’ phase will last longer. It has been suggested that it could be more than two 50 basis point hikes.

Consumer prices in the United States rose 8.3% in the 12 months to April, according to Labor Department figures released May 11. That was slightly lower than the 8.5% increase in the 12 months to March, which marked the highest rate of inflation in 40 years.

While inflation is expected to decline further, supply chain disruptions associated with the Russian invasion of Ukraine and the Covid shutdowns in China will likely maintain upward pressure on prices in the months ahead. Powell made it clear that the Fed would not over-analyze incoming data when formulating its short-term policy.

“We all read – of course, everyone reads – inflation reports very carefully and look for details that look positive, and that sort of thing,” he said. “But honestly, we don’t – now is not the time for extremely nuanced readings of inflation.”

Domestic demand remains strong even as financial conditions have tightened following comments in recent weeks from a number of Fed officials who said they wanted to raise rates to “neutral” levels by the end of the month. the year, which they estimate at around 2.5%. But Powell warned that higher rates could eventually start to have a bigger impact on growth.

“It’s a strong economy and we think it’s well positioned to withstand less accommodative monetary policy, tighter monetary policy,” Powell said. “There may be difficulties in restoring price stability, but we believe we can maintain a strong labor market.”

The unemployment rate in April stood at 3.6%, just above the pre-pandemic low of 3.5% reached during the last expansion. Total employment was still one million jobs below February 2020 levels, and monthly job creation remains high relative to the pre-pandemic expansion as Americans continue to return to work.

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