Fed will raise rates more aggressively if needed, Powell says March 22, 2022 Powell says the Fed will raise rates more aggressively if necessary<br /> March 21, 2022 Creation time: 10:24 PM Last update: 10:24 PM Views: 490 Washington, March 21 (BNA) Federal Reserve Chairman Jerome Powell said that the US central bank must move “quickly” to curb very high inflation and, if necessary, use a higher-than-usual interest rate. Hike to do it. “The labor market is very strong, inflation is very high,” Powell said at a conference of the National Society for Business Economics. “There is a clear need to move quickly to bring the monetary policy stance back to a more neutral level, and then move to more restrictive levels if that is what is required to restore price stability.” In particular, he added, “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.” Federal policy makers last week raised interest rates for the first time in three years and signaled continued interest rate hikes in the future. Most see the short-term policy rate — which has been held for two years near zero — at 1.9% by the end of this year, a pace achievable in quarter-point increments at each of the next six policy meetings, Reuters reports. . By the end of next year, Fed policymakers expect the central bank’s benchmark interest rate to be at 2.8%, raising borrowing costs to a level where they are already starting to grow. Most Fed policymakers see the “neutral” level between 2.25% and 2.5%. Powell reiterated Monday that the Fed’s cuts to its massive balance sheet could begin as early as May, a process that could further tighten financial conditions. US stocks extended earlier losses after his comments and traders reinforced their bets that the Federal Reserve will raise interest rates by half a percentage point at the policy meeting in May. “This is not just going to be a tactical phenomenon in the near term,” said Kevin Flanagan, head of fixed income strategy at WisdomTree Investments in New York. “This is a more strategic kind of message, I think, from the Federal Reserve.” The consensus for a more aggressive tightening — or at least an openness to it — appears to be growing. Atlanta Federal Reserve Chairman Rafael Bostick, who expects a slightly gentler path to price increases than most of his colleagues, said earlier Monday that he was open to larger-than-usual rate increases “if that’s what the data suggests is appropriate.” Speaking on Friday, Fed Governor Chris Waller said he favors a series of half-percentage point rate increases to have a faster impact on inflation. The unemployment rate in the US is currently 3.8%, and job vacancies per person are at a record high, a combination that is raising wages faster than is sustainable. “There is excess demand,” Powell said, adding that less accommodative monetary policy “in principle” could reduce pressure in the labor market and help stabilize inflation without increasing unemployment, leading to a “soft landing” rather than a recession. Inflation risk Inflation in the Fed’s preferred measure is three times the central bank’s 2% target, driven upward by congested supply chains that have taken longer to fix than most people expected, and that could get worse as China responds to new COVID-19 heights with a new shutdown. Adding to the pressure on prices, Russia’s war in Ukraine is raising the cost of oil and threatening to push inflation even higher. Powell noted that the United States, which is now the world’s largest oil producer, is better able to withstand an oil shock now than it was in the 1970s. Although the Fed in normal times likely won’t tighten monetary policy to address what may ultimately be a temporary spike in commodity prices, Powell said, “the risk is growing that a prolonged period of high inflation could push the long-term outlook indefinitely higher.” relaxing. . “ Last year, the Fed repeatedly predicted that supply chain stresses would ease, and then repeatedly disappointed. “As we define policy, we will look to make real progress on these issues and not assume significant supply-side easing in the near term,” Powell said Monday. This year, policymakers have begun to anticipate that inflation will peak this quarter and subside in the second half of the year. “That story really fell apart,” Powell said. “To the extent that the breakdown continues, my colleagues and I may come to a conclusion that we will need to move more quickly, and if that is the case, we will.” Fed policymakers are hoping to rein in inflation without faltering growth or bringing unemployment back up, and their forecasts released last week suggest they see a path for that, with the median view of inflation dropping to 2.3% by 2024 but unemployment still at 3.6%. Powell said he expects inflation to fall to “nearly 2%” over the next three years, and that while a “soft landing” may not be easy, there is plenty of historical precedent. “The economy is very strong and well-positioned to deal with tighter monetary policy,” he said. Source link Related READ MORE Euro falls on GDP data, yen slumps as BOJ maintains ultra-low rates
March 21, 2022 Creation time: 10:24 PM Last update: 10:24 PM Views: 490 Washington, March 21 (BNA) Federal Reserve Chairman Jerome Powell said that the US central bank must move “quickly” to curb very high inflation and, if necessary, use a higher-than-usual interest rate. Hike to do it. “The labor market is very strong, inflation is very high,” Powell said at a conference of the National Society for Business Economics. “There is a clear need to move quickly to bring the monetary policy stance back to a more neutral level, and then move to more restrictive levels if that is what is required to restore price stability.” In particular, he added, “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.” Federal policy makers last week raised interest rates for the first time in three years and signaled continued interest rate hikes in the future. Most see the short-term policy rate — which has been held for two years near zero — at 1.9% by the end of this year, a pace achievable in quarter-point increments at each of the next six policy meetings, Reuters reports. . By the end of next year, Fed policymakers expect the central bank’s benchmark interest rate to be at 2.8%, raising borrowing costs to a level where they are already starting to grow. Most Fed policymakers see the “neutral” level between 2.25% and 2.5%. Powell reiterated Monday that the Fed’s cuts to its massive balance sheet could begin as early as May, a process that could further tighten financial conditions. US stocks extended earlier losses after his comments and traders reinforced their bets that the Federal Reserve will raise interest rates by half a percentage point at the policy meeting in May. “This is not just going to be a tactical phenomenon in the near term,” said Kevin Flanagan, head of fixed income strategy at WisdomTree Investments in New York. “This is a more strategic kind of message, I think, from the Federal Reserve.” The consensus for a more aggressive tightening — or at least an openness to it — appears to be growing. Atlanta Federal Reserve Chairman Rafael Bostick, who expects a slightly gentler path to price increases than most of his colleagues, said earlier Monday that he was open to larger-than-usual rate increases “if that’s what the data suggests is appropriate.” Speaking on Friday, Fed Governor Chris Waller said he favors a series of half-percentage point rate increases to have a faster impact on inflation. The unemployment rate in the US is currently 3.8%, and job vacancies per person are at a record high, a combination that is raising wages faster than is sustainable. “There is excess demand,” Powell said, adding that less accommodative monetary policy “in principle” could reduce pressure in the labor market and help stabilize inflation without increasing unemployment, leading to a “soft landing” rather than a recession. Inflation risk Inflation in the Fed’s preferred measure is three times the central bank’s 2% target, driven upward by congested supply chains that have taken longer to fix than most people expected, and that could get worse as China responds to new COVID-19 heights with a new shutdown. Adding to the pressure on prices, Russia’s war in Ukraine is raising the cost of oil and threatening to push inflation even higher. Powell noted that the United States, which is now the world’s largest oil producer, is better able to withstand an oil shock now than it was in the 1970s. Although the Fed in normal times likely won’t tighten monetary policy to address what may ultimately be a temporary spike in commodity prices, Powell said, “the risk is growing that a prolonged period of high inflation could push the long-term outlook indefinitely higher.” relaxing. . “ Last year, the Fed repeatedly predicted that supply chain stresses would ease, and then repeatedly disappointed. “As we define policy, we will look to make real progress on these issues and not assume significant supply-side easing in the near term,” Powell said Monday. This year, policymakers have begun to anticipate that inflation will peak this quarter and subside in the second half of the year. “That story really fell apart,” Powell said. “To the extent that the breakdown continues, my colleagues and I may come to a conclusion that we will need to move more quickly, and if that is the case, we will.” Fed policymakers are hoping to rein in inflation without faltering growth or bringing unemployment back up, and their forecasts released last week suggest they see a path for that, with the median view of inflation dropping to 2.3% by 2024 but unemployment still at 3.6%. Powell said he expects inflation to fall to “nearly 2%” over the next three years, and that while a “soft landing” may not be easy, there is plenty of historical precedent. “The economy is very strong and well-positioned to deal with tighter monetary policy,” he said.
