Powell says curbing inflation is ‘absolutely necessary’ and could see a 50bp rise in May

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. One basis point is equal to 0.01 percentage point.

At its March meeting, the Fed approved a 25 basis point level, but officials in recent days have said they see a need to move faster as consumer inflation sits at 8.5 percent annually. .

Market valuations rallied by 50 basis points in a row, which would eventually bring the Fed’s benchmark overnight borrowing rate to around 2.5% by the end of 2022.

“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’re going to hear anyone at the Fed say it’s going to be that 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.”

The Fed has resisted raising rates through 2021 even though inflation is well above the central bank’s 2% long-term target. Under the policy framework adopted at the end of 2021, the Fed said it would be content to let inflation rise above normal in the interests of achieving full employment including income demographics, races, and demographics. race and gender.

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, those expectations “disappointed” and 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 raise rates and quickly to more neutral levels and then really very tight… if that turns out to be the case when we get there. “

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