NEW YORK (Reuters) – The US Federal Reserve wants to tighten monetary policy until inflation is brought under control, according to Fed Chair Jerome Powell.
There must be “clear and compelling” signs that inflation is slowing down, he said Tuesday at a Wall Street Journal event. The Fed wants to see that. If that doesn’t happen, she’ll have to consider a more aggressive approach. The central bank has the tools and the stamina to fight inflation: “No one should doubt our determination.”
If necessary, the central bank would not hesitate to raise interest rates above the neutral level, at which the economy is neither stimulated nor slowed down. At the most recent rate meeting, there was broad support for the idea of raising rates by half a percentage point each at the June and July meetings. This is not associated with any prediction. But if the economy develops as expected, these options are on the table.
The Fed is facing an inflation rate of 8.3 percent. Against this background, it recently took the largest interest rate step in 22 years – an increase of half a percentage point to the new interest rate range of 0.75 to 1.00 percent. The market continued to speculate that the Fed could be forced to make even larger interest rate hikes of three-quarters of a percentage point in view of the persistently high inflation.
Powell stressed that market reactions to the Fed’s actions had already tightened financing conditions significantly. In the fight against inflation, it must also be accepted that economic growth will be lower. At the same time, the head of the central bank repeated his statement that the Fed would probably be able to achieve “a kind of soft landing” for the economy.