Powell says Fed is ready to raise rates aggressively if needed, to combat soaring inflation

• Fed to hike rates until inflation comes under control and could get even more aggressive

• Powell said rate rises could go more than usual 25 basis point increase if necessary

Federal Reserve Chair Jerome Powell on Monday promised to take strict action against inflation, which he said is putting in at risk to an otherwise strong economic recovery.

“We will take the necessary steps to ensure a return to price stability,” Powell said in prepared remarks for the National Association for Business Economics.

“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.”

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The comment comes less than a week after the Fed raised the benchmark interest rate by a quarter-point for the first time in more than three years.

Rate hikes to combat inflation

The central bank raised the rate last Wednesday that was anchored near zero since the beginning of the COVID-19 pandemic to combat inflation that is running at its highest level in 40 years.

It also signaled six more hikes of that magnitude in 2022, based on the median projection.

The rate is projected to reach 2.8% by 2023, beyond the so-called neutral rate of about 2.4%, which neither speeds up nor slows down economic activity.

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Although Powell said central banks typically look through event-driven commodity price shocks, he said Russia’s invasion of Ukraine is adding “already too high” inflation pressures with surging food and energy prices, and this time won’t 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,” he said, adding that this “underscores the need for the Committee to move expeditiously.”

Picture Credit: NY Times