The Central Bank may raise the federal funds rate by 5% at its May meeting as inflation rises, Federal Reserve Chairman Jerome Powell said Thursday. The Fed increased its rate by .25% in March, a move that some economists have criticized as unaggressive as inflation reached 8.5% last month: the fastest increase in 40 years.
“I would say 50 basis points will be on the table for the May meeting,” Powell said Thursday during a discussion of the International Monetary Fund on the outlook for the world economy as financial officials meet this week in Washington.
Powell said the decision is made meeting by meeting. The next meeting will be held May 3-4.
“From my point of view, it’s appropriate to move a little faster and I also think there’s something in the idea of loading the front-end any accommodation that is deemed appropriate,” Powell said. “That points in the direction of 50 basis points on the table, no doubt.”
His comments are the latest in a series of comments from Fed officials stating that more aggressive action could be taken next month. In a recent interview, the chairman of the Federal Bank of New York, John Williams, said that 50 basis points is a “reasonable choice.”
He rising prices last month it was largely fueled by rising energy and food costs, which have been affected by the Russian invasion of Ukraine. Powell said the US economy is far from the effects of the US economy war in Ukraine, but inflation is still on the rise. Despite the great uncertainty and rising prices, Powell maintains an optimistic global economic outlook.
“The US economy is very strong, performing very well according to most forecasts,” Powell said. He noted the strong labor market and said the US will have another very strong year of growth.
“The big issue we’re very focused on is inflation and bringing inflation back to our 2% target,” Powell said.
Reducing inflation without pushing the US into recession will be a challenge. Treasury Secretary Janet Yellen recently said it’s possible, but it takes skill and good luck to get the so-called “soft landing.” Powell acknowledged on Thursday that the balance was tight: synchronizing supply and demand again to reduce inflation without a slowdown equivalent to a recession.
“I don’t think anyone in the Fed hears that this is going to be easy or straightforward,” Powell said. “It will be very difficult. We will do our best to achieve this.”
Powell noted that inflation is indeed a “global problem” and is “high in most places.” But he argued that there are differences with the United States with very strong growth and higher core inflation.
When asked if he thought inflation had peaked last month, Powell was hesitant to set an expectation. The Central Bank has been criticized for saying for much of last year that inflation would be “transitory” before the term is withdrawn. Powell noted that inflation was expected to peak around this time of year and fall throughout this year and next. He said that with the expectations that had been disappointing in the past, they now want to see “real progress”. He said they did not know if inflation peaked in March and that they would not “count on it”. He also said the Fed no longer expects help from the supply side that is being fixed.
“We’re really going to raise rates and get to levels that are more neutral and then get really tight, tightening the policy if that turns out to be appropriate once we get there,” Powell said.
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- Jerome Powell
- Inflation
- Federal Reserve
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