Big Step Implied by US Powell: "Inflation Too High... More If Necessary"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), reaffirmed on the 21st (local time) that U.S. inflation is too high and that more aggressive tightening measures could be taken if necessary. He also hinted at the possibility of a so-called 'big step' increase of 0.5 percentage points at once.

According to the economic media CNBC, Chairman Powell attended the National Association for Business Economics (NABE) conference that day and stated, "The labor market is very strong, but inflation is too high." This statement came less than a week after the Fed raised interest rates for the first time in 3 years and 3 months to curb inflation, which has surged to the highest level in 40 years.

Chairman Powell reiterated that the Fed will continue its monetary tightening until U.S. inflation eases. He said, "We will take the necessary measures to stabilize inflation," adding, "If we conclude that it is appropriate to act more aggressively by raising the benchmark interest rate by more than 0.25 percentage points at a meeting, we will do so." He also added, "If we decide that more tightening beyond the usual measures is necessary, we will do that."

Earlier, on the 16th, the Fed raised the current near-zero interest rate by 0.25 percentage points for the first time in 3 years and 3 months after the Federal Open Market Committee (FOMC) regular meeting. Along with this, it projected the interest rate level to reach 1.9% by the end of this year. This means that the Fed could raise interest rates by 0.25 percentage points at each of the remaining six FOMC meetings this year.

Chairman Powell's remarks on this day were interpreted as suggesting that the Fed might raise rates by 0.5 percentage points at once from the next meeting if necessary, rather than sticking to the previous 0.25 percentage point increase. CNBC reported that the market sees nearly a 50% chance of a 0.5 percentage point increase at the May FOMC meeting.

Powell emphasized that although inflation is expected to fall to around 2% over the next three years, monetary normalization policies are urgent. He said, "Since the world will eventually reach a new normal, supply-side issues will be resolved over time," but added, "The timing and scope are very uncertain."

He also mentioned that Russia's recent invasion of Ukraine has worsened supply chain disruptions and increased inflationary pressures. Currently, U.S. inflation far exceeds the Fed's target of 2%. In February, the U.S. Consumer Price Index (CPI) surged 7.9% year-on-year, marking the largest increase in 40 years.

Regarding quantitative tightening (QT), such as balance sheet reduction, he reaffirmed the stance expressed immediately after the FOMC meeting that it could begin as early as May, but no definite decision has been made yet.

This content was produced with the assistance of AI translation services.