US Fed's Powell: "0.75%P Increase, Uncommon... Will Discuss Again in July" (Update)

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[Asia Economy New York=Special Correspondent Joselgina] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), stated on the 15th (local time) that the so-called 'Giant Step' of raising the benchmark interest rate by 0.75 percentage points at once was an "uncommon measure," but added that "there is a high possibility of a 0.5 to 0.75 percentage point increase at the next meeting."

Chairman Powell said this during a press conference held immediately after the Federal Open Market Committee (FOMC) regular meeting in the afternoon, stating, "I believe it is appropriate to continue raising interest rates."

On the same day, the Fed raised the federal funds rate by 0.75 percentage points from the previous 0.75?1.00% to 1.50?1.75%. This is the first time in 27 years and 7 months since November 1994, during former Chairman Alan Greenspan's tenure, that the Fed has raised rates by 0.75 percentage points at once.

This Giant Step is interpreted as a judgment that an extreme measure is necessary as U.S. inflation, at its highest level in about 41 years, is not easing. The recently released U.S. May Consumer Price Index (CPI) recorded the largest increase since 1981 at 8.6%, and the expected inflation for the next year hit an all-time high of 6.6%. This reflects the Fed's firm determination to stabilize soaring inflation by any means necessary.

Chairman Powell evaluated the Giant Step this month as appropriate, saying, "Inflation rose surprisingly after the May meeting." He explained, "Certainly, today's 0.75 percentage point increase was exceptionally large. It is an uncommon measure," and "the pace of interest rate changes depends on upcoming data and economic outlook."

He did not rule out the possibility of another Giant Step at the July FOMC regular meeting. Emphasizing policy flexibility, he said, "From today's perspective, it is highly likely that the next meeting will discuss an increase in the range of 0.5 to 0.75 percentage points." However, he added the caveat that "a 0.75 percentage point increase is an uncommon and strong measure."

Regarding the possibility of raising rates by 1.0 percentage point at once, Powell said, "We will have to see," indicating that future moves will depend on data. He also mentioned that changing policy or receiving delayed data during the blackout period just before the FOMC has happened only about twice, reaffirming that this is an unusual situation due to high inflation indicators. Additionally, he expressed confidence that Fed guidance can be trusted.

He suggested that the neutral interest rate range is roughly 3 to 3.5%. He also added that Fed officials are discussing a range of 3.5 to 4.0%. When asked whether inflation and other issues would be resolved if rates rise to this level, he gave a cautious answer, saying, "We will have to see."

The dot plot released by the Fed on the same day showed a median forecast for the benchmark interest rate at the end of this year at 3.4%, which is 1.5 percentage points higher than the estimate in March.

Chairman Powell also mentioned that the Fed does not intend to induce a recession. He explained, "The direction toward the inflation target of 2% has become more difficult. Many countries around the world are experiencing high inflation," adding, "Rises in energy and food prices are beyond the Fed's control."

Regarding the U.S. economy, he assessed that it is strong enough to withstand tightening policies without causing major market disruptions. He said, "We are closely monitoring the slowdown in consumption," and diagnosed, "According to data analysis, consumer spending is strong. There are currently no signs of an impending recession."

As Chairman Powell left open the possibility of a Giant Step while showing caution, the market rallied with relief. Major indices of the New York Stock Exchange, which had partially given up gains immediately after the rate hike announcement, expanded their gains again.

Meanwhile, in the economic outlook released together, the forecast for this year's U.S. personal consumption expenditures (PCE) inflation rate was revised upward from 4.3% to 5.2%. The forecast for core inflation excluding energy and food was raised by 0.2 percentage points to 4.3%. Along with this, the Fed lowered the forecast for the U.S. real gross domestic product (GDP) growth rate this year from the baseline 2.8% to 1.7%.

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