Federal Reserve Chairman Jerome Powell said Monday that the central bank is prepared to take more aggressive steps to drive down inflation, including by raising interest rates by half a percentage point, akin to a double rate hike, should it be necessary.
Powell, in remarks prepared for delivery at a Monday economic conference, struck a more direct tone when it came to how far the Fed would be willing to go to beat back higher prices.
“We will take the necessary steps to ensure a return to price stability,” Powell said. “In particular, 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.
“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,” he added.
LONE FED DISSENTER WARNS CENTRAL BANK IS MOVING TOO SLOWLY TO CURB INFLATION
His remarks come just days after the Fed announced it would raise its interest rate target by a quarter of a percentage point in an effort to curb the country’s soaring inflation. The central bank had declined the more forceful hike in light of the uncertainty surrounding the war in Ukraine and the pandemic.
Inflation is running red-hot, with consumer prices increasing by 7.9% for the 12 months ending in February. Some economists have been calling for tighter monetary policy for months and believe that Powell and other Federal Open Market Committee members have been too blase about the threat that inflation poses.
Powell acknowledged on Monday that the increases in inflation have been “much greater and more persistent” than anticipated by the Fed and other economic forecasters.
He pushed back a bit on those who fear efforts to slow the economy and drive down prices could lead to a recession. He said the economy is quite strong and is well positioned to handle the increased tightening of monetary policy.
“I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context — very little is straightforward in the current context,” the chairman said. “And monetary policy is often said to be a blunt instrument, not capable of surgical precision. My colleagues and I will do our very best to succeed in this challenging task.”
Fed officials, as a group, indicated after last week’s meeting that they expect between six and eight rate hikes over the course of 2022, although St. Louis Federal Reserve President James Bullard dissented and said he is hoping for at least a dozen rate hikes this year to stave off inflation. He also said the rate target should have been increased to half a percentage point.
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“The combination of strong real economic performance and unexpectedly high inflation means that the committee’s policy rate is currently far too low to prudently manage the U.S. macroeconomic situation,” Bullard said last Friday. “Moreover, U.S. monetary policy has been unwittingly easing further because inflation has risen sharply while the policy rate has remained very low, pushing short-term real interest rates lower.”
