Powell says Fed could raise interest rates faster to combat red-hot inflation
Powell opens door to 50-basis point rate hike to quell inflation
Inflation is a bigger problem than Powell wanted to admit: Kenny Polcari
SlateStone Wealth chief market strategist Kenny Polcari weighs in on Jerome Powell’s testimony and the inflation crisis.
Federal Reserve Chairman Jerome Powell said Monday the central bank is prepared to more aggressively raise interest rates if policymakers conclude that doing so is warranted to bring down the hottest inflation in four decades.
"We will take the necessary steps to ensure a return to price stability," Powell said in remarks prepared for delivery at an economics conference in Washington, D.C.
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The Fed voted last week to raise its benchmark federal funds rate by 25-basis points to a range between 0.25% and 0.5%. Officials projected at least six more, similarly sized increases over the course of this year.
Powell's comments made it clear, however, that officials are willing to move faster to raise borrowing costs in order to cool demand if needed, including opening the door to a larger, half-point rate hike. The Fed has not raised the federal funds rate by 50 basis points since 2000.
"If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so," Powell said. "And 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."
Powell also hinted that Fed officials could proceed as early as their next meeting in May with starting to unwind the central bank's nearly $9 trillion balance sheet
The Labor Department reported earlier this month that the consumer price index rose 7.9% in February from the previous year, marking the fastest increase since January 1982, when inflation hit 8.4%. The CPI – which measures a bevy of goods ranging from gasoline to health care – rose 0.8% from January.
Federal Reserve Chair Jerome Powell pauses during a news conference in Washington on Jan. 29, 2020. (AP Photo/Manuel Balce Ceneta, File / AP Newsroom)
Some economists believe the Fed waited too long to confront the burst in inflation, while others have expressed concerns that moving too quickly to stabilize prices risks triggering an economic recession. Hiking interest rates tends to create higher rates on consumers and business loans, which slows the economy by forcing employers to cut back on spending.
Powell maintained hope that the central bank can strike a delicate balance between taming inflation without crushing the economy – as has sometimes happened in the past – because of the strong labor market and recovery from the pandemic.
Still, he acknowledged it will be a difficult track, particularly as fallout from the Russian invasion of Ukraine creates fresh obstacles for the Fed to navigate.
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"No one expects that bringing about a soft landing will be straightforward in the current context," Powell said.
The Fed's next meeting is scheduled for May 3-4. After that, it has five more meetings in 2022 in June, July, September, November and December.