In a new interview with Marketplace, Fed chair Jerome Powell hinted at raising interest rates in June and July just weeks after the benchmark interest rate increased by 0.5 per cent; the single highest increase since May 2000.
“… we thought that if the economy performs about as expected, that it would be appropriate for there to be additional 50-basis point increases at the next two meetings,” Mr Powell said.
“But I would just say, we have a series of expectations about the economy. If things come in better than we expect, then we’re prepared to do less. If they come in worse than when we expect, then we’re prepared to do more.”
Mr Powell said the Fed’s long-term aim is to get inflation back to 2 per cent while keeping the labour market strong, however conceded that getting to that figure will “include some pain”.
“…but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that’s like,” Mr Powell said.
“And that’s just people losing the value of their paycheck to high inflation and, ultimately, we’d have to go through a much deeper downturn. And so we really need to avoid that.”
Mr Powell’s comments come after some financial experts weighed in on the matter this week, with some anticipating that that the stubborn US inflation could provoke the Federal Reserve into more aggressive action.
According to Russel Chesler, head of investments and capital markets at investment service VanEck, there is “greater chance that we could see more aggressive interest rate tightening from the US Federal Reserve this year”.
Mr Chesler’s assessment follows an admission by Atlanta Fed president Raphael Bostic, who said he is open to “moving more” on rates if inflation remains at current levels.
“With inflation sitting at a 40-year high, equity markets are on edge as the US Fed moves into an aggressive monetary tightening cycle, unwinding the huge amount of monetary stimulus we’ve seen in recent times,” Mr Chesler said, noting that this has fuelled concerns about an impending global recession and possibly stagflation.
Neil Griffiths
Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.
Neil is also the host of the ifa show podcast.
