WASHINGTON (dpa-AFX) – The head of the US Federal Reserve (Fed), Jerome Powell, has brought the possibility of faster increases in the key interest rate into play in view of the “much too high” inflation rate. The Fed could also hike interest rates by more than 0.25 percentage points at upcoming Fed meetings if needed, Powell said Monday. “We will take the necessary steps to guarantee a return to price stability,” Powell said. “The labor market is very strong and inflation is far too high,” added the central bank governor.
The Fed had raised the key interest rate last week for the first time since the beginning of the corona pandemic – as expected by the market by 0.25 percentage points to a range of 0.25 to 0.5 percent. According to one forecast, Fed members expect an average increase to 1.9 percent by the end of the year. In addition, the Fed will soon start reducing its balance sheet, which has been swollen by Corona aid programs, which would drain further liquidity from the markets.
Powell warned that Russia’s war of aggression in Ukraine could have “significant consequences” for the global economy, including US growth. The extent of these effects is currently still “highly uncertain”. Both Russia and Ukraine are important raw material producers. Powell said additional inflation as a result of the conflict over energy and food prices, for example, is fueling inflation. The central bank must now act quickly to restore price stability, he stressed.
Increases in the key interest rate slow down demand. This helps bring down the rate of inflation, but it also weakens economic growth. It is therefore a balancing act for the central bank: it wants to raise interest rates so quickly and so much that inflation is slowed down – without stalling the economy and the labor market at the same time.
The Fed is committed to the goals of price stability and full employment. The US economy is booming, the unemployment rate had recently fallen to a low 3.8 percent. Consumer prices, on the other hand, rose by almost 8 percent in February compared to the previous year, which was the highest value in 40 years./jbz/DP/jkr