Federal Reserve Chair Jerome Powell intends if the central bank is ready to raise interest rates by half a percentage point and concludes that such measures are justified in lowering inflation. He said it was high enough to slow down the economy.
“If you think it’s appropriate for us to grow [by a half point] Powell said in a moderated discussion after a speech on Monday in front of the National Association for Business Economics in Washington, DC.
Powell’s remarks were tougher than those used a few days ago at a press conference after the Fed resolved to raise benchmark rates to a quarter, until the central bank saw clear evidence of inflation. , Showed a strong bias towards raising interest rates. It has fallen to the target of 2%.
The Federal Reserve raised interest rates from near zero to 0.25% to 0.5% last week, and authorities made a series of additional increases, slightly below 2% at the end of this year and to about 2.75% next year. I pulled it up.
Powell overcame the pandemic of Covid 19 and the aftereffects of the recent Ukrainian war, repeatedly highlighting the uncertainties faced by Fed officials, and they are ready to shift policy in a more destructive direction. Said that.
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“If we decide we need to go beyond the general neutrality and tighten to a more restrictive stance, we will do that too,” Powell said. Most Fed officials believe that the neutral rate is close to 2.5%, assuming an annual inflation rate of 2%.
As Powell said, stocks and bonds have fallen. The Dow Jones Industrial Average fell 0.58% on Monday. Benchmark 10-year Treasury yields rose to 2.298% in the afternoon trading as yields rise as bond prices fall.
Tim Duy, Chief Economist at research firm SGH Macro Advisors, said: “This is even clearer and probably more reflective of his own views,” compared to Powell’s press conference, which spoke on behalf of the central bank’s interest rate setting committee last week.
According to the latest Fed data available, annual inflation in January rose to 6.1%, according to the Fed’s recommended gauge. Core inflation, excluding food and energy, rose to 5.2%. According to last week’s forecast, most Fed officials expect core inflation to end at 4.1% if interest rates are raised to around 2% this year.
Powell said inflation outlook had deteriorated significantly before Russia invaded Ukraine, and Western responses to the effects of the war in Europe and severe sanctions on the Russian economy pushed up key prices while supplying supplies. He warned that it could exacerbate the chain disruption. Products used to make various products. His speech was entitled “Recovering Price Stability” as a sign of growing intolerance to Mr Powell’s inflationary surprises.
In January, the Fed expected inflation to fall this year as supply chain bottlenecks improved. “The story has already collapsed,” Powell said on Monday. “As long as it continues to collapse, my colleagues and I may come to the conclusion that we need to act faster. If so, we will.”
Federal Reserve Chair Jerome Powell said the central bank would raise interest rates from nearly zero to a quarter percentage point. Powell also announced plans to steadily raise interest rates this year to curb inflation.Photo: Federal Reserve Board
Powell contrasted the potential shock to inflation from the surge in a wide range of commodities, including energy from the Ukrainian War, with the shock to oil prices from geopolitical events in the 1970s in the Middle East. Powell said the history was “not a happy history” for the Fed as it led to double-digit inflation.
Central bank textbooks consider the impact of supply shocks on inflation to be temporary unless the public expects permanent high future inflation. In the 1970s, expectations were less stable and the shocks of 1973 and 1979 led to broader inflation. However, consumer surveys and market-based measurements show that inflation expectations have been relatively stable since the 1990s and have emerged from the 1990s and 2003 oil crises.
The question is whether 2022 resembles the shock of the 1970s or a recent episode.The Ukrainian shock is “like a classic supply shock” [that] I tend to want to read it, “Powell said. However, the Fed is less likely to ignore the shock, as the risk of high inflation risks raising consumer and business expectations to levels that can create much more volatile psychology at higher prices. Stated.
“We’re not entirely happy with the typical approach of just looking at that approach,” Powell said.
The Federal Reserve’s current task is to curb inflation by raising interest rates to ease demand, but it is not aggressive enough to plunge the economy into recession. Powell said it was still possible to design such a so-called soft landing, pointing out three cases over the last 60 years that the Fed believed achieved such results.
But he added some warnings. “No one expects that bringing about a soft landing will be easy in the current situation. It’s almost not easy in the current situation.”
Monetary policy is “blunt and lacks surgical accuracy,” Powell added. “My colleagues and I will do our best to make this rewarding work a success.”
The Federal Reserve continues to look forward to significant support from supply chain recovery and workers’ return to the employment market to reduce inflation this year and next year. But Powell said policies can no longer be set by predicting such bailouts, in contrast to the Fed’s stance throughout most of 2021.
“When we set policies, we look at the actual developments in these issues and do not envision significant short-term supply-side bailouts,” he said.
Duy said these comments provided the clearest understanding of how the Fed’s urgency to raise rates has risen in recent weeks. “They will continue hiking until there is clear evidence that inflation concerns can be receded,” Duy said. “Rather than expecting inflation to go down, we need clear and compelling evidence that inflation is going down.”
Powell also acknowledged for the first time that the economy may be experiencing major changes that may have frayed many forces that have contributed to lower inflation over the last 25 years, including globalization. Globalization makes it much harder for businesses to raise prices, and a more fragmented global economy may reverse some of the forces that have been lowering prices in recent decades, he said.
Powell said he had never found these arguments in favor of a particularly compelling future rise in inflation before the pandemic, but the pandemic, unusually strong policy response, and the war in Ukraine An economy that said it was difficult to tell how to change the nature of Ukraine.
“No one is sitting in the Fed … just waiting for the old government to come back. I think people have a good understanding of what we are doing,” he said. “It’s a series of shocks that happened, we have a job to do, and we’re very focused on doing that job.”
Write to Nick Timiraos ([email protected])
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