US Federal Reserve Chair Jerome Powell said the central bank is prepared to raise interest rates by a half percentage-point at its next meeting if needed, deploying a more aggressive tone toward curbing inflation than he used just a few days earlier.
Policymakers raised the benchmark lending rate by a quarter point at their meeting on Wednesday last week — ending two years of near-zero borrowing costs — and signaled six more hikes of that magnitude this year, based on the median projection.
Powell said that half-point hikes might be an option when policymakers next gather on May 3 and 4, and at subsequent sessions.
Photo: Valerie Plesch, Bloomberg
“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 in a speech titled “Restoring Price Stability” to the National Association for Business Economics on Monday.
Following his formal remarks, Powell was asked by the moderator if there was anything stopping policymakers from hiking by a half point in May, which would be the first increase of that magnitude since 2000.
“What would prevent us? Nothing: Executive summary,” he said, drawing laughs from the audience.
He said that such a decision had not been made, but added that it was possible if warranted by incoming data.
“My colleagues and I may well reach the conclusion that we’ll need to move more quickly and if so we will do so,” he said.
Powell was more hawkish on Monday than at the news conference following last week’s meeting, indicating that if inflation continues to run hot he would favor a more aggressive pace of tightening.
Last week, he had to speak for the range of views among the 16 policymakers on the US Federal Open Market Committee.
Markets heard the chair’s message and moved sharply in response, sending US Treasury yields spiking higher as investors increased bets that the Fed will raise interest rates by a half-point in May to confront the hottest inflation in 40 years.
Goldman Sachs Group Inc economists led by Jan Hatzius saw the comments as a hawkish signal and now expect the Fed to raise interest rates by 50 basis points at its May and June policy meetings, followed by four 25 basis point increases in the second half of the year.
The Fed’s policy rate is anticipated to reach 2.8 percent next year, beyond the so-called neutral rate of about 2.4 percent that neither speeds up nor slows down economic activity.
“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 said.
The Fed chair — who reiterated and elaborated on many of his key comments from last week’s news conference — said Russia’s invasion of Ukraine is aggravating inflation pressures by boosting prices on food, energy and other commodities “at a time of already too high inflation.”
He said central banks typically look through event-driven commodity price shocks, but this time would not necessarily be typical.
“The risk is rising that an extended period of high inflation could push longer-term expectations uncomfortably higher, which underscores the need for the committee to move expeditiously as I have described,” he said.
The comments suggest that Powell sees even higher inflation as a greater risk to the economy than any near-term slowdown resulting from consumption due to fuel costs and rising uncertainty.
Powell described the US economy as “very strong” and well-positioned to handle higher interest rates.
Fed officials last week forecast economic growth of 2.8 percent this year, but Russia’s invasion of Ukraine has thrown new risk into their outlook.
Discussions on when and how quickly to start winding down their US$8.9 trillion balance sheet are still ongoing, policymakers have said, but a decision is expected soon.
On that topic, Powell reiterated a comment from last week’s news conference, saying that action to reduce the balance sheet “could come as soon as our next meeting in May, though that is not a decision that we have made.”
The Fed chair said policymakers are no longer assuming significant relief on supply-chain issues and would be looking for “actual progress” on inflation to guide interest rate decisions.
Despite the aggressive tone of Powell’s remarks, he said he remained optimistic about soft landing the economy to some sustainable growth rate.
“Soft, or at least softish, landings have been relatively common in US monetary history,” he said. “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.”
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
ADVERSARIES: The new list includes 11 entities in China and one in Taiwan, which is a local branch of Chinese cloud computing firm Inspur Group The US added dozens of entities to a trade blacklist on Tuesday, the US Department of Commerce said, in part to disrupt Beijing’s artificial intelligence (AI) and advanced computing capabilities. The action affects 80 entities from countries including China, the United Arab Emirates and Iran, with the commerce department citing their “activities contrary to US national security and foreign policy.” Those added to the “entity list” are restricted from obtaining US items and technologies without government authorization. “We will not allow adversaries to exploit American technology to bolster their own militaries and threaten American lives,” US Secretary of Commerce Howard Lutnick said. The entities
Minister of Finance Chuang Tsui-yun (莊翠雲) yesterday told lawmakers that she “would not speculate,” but a “response plan” has been prepared in case Taiwan is targeted by US President Donald Trump’s reciprocal tariffs, which are to be announced on Wednesday next week. The Trump administration, including US Secretary of the Treasury Scott Bessent, has said that much of the proposed reciprocal tariffs would focus on the 15 countries that have the highest trade surpluses with the US. Bessent has referred to those countries as the “dirty 15,” but has not named them. Last year, Taiwan’s US$73.9 billion trade surplus with the US
Prices of gasoline and diesel products at domestic gas stations are to fall NT$0.2 and NT$0.1 per liter respectively this week, even though international crude oil prices rose last week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) said yesterday. International crude oil prices continued rising last week, as the US Energy Information Administration reported a larger-than-expected drop in US commercial crude oil inventories, CPC said in a statement. Based on the company’s floating oil price formula, the cost of crude oil rose 2.38 percent last week from a week earlier, it said. News that US President Donald Trump plans a “secondary
RSS