Fed Mulls Higher Interest Rate Hike to Fight Inflation
Jerome Powell, Federal Reserve Chair

Fed Mulls Higher Interest Rate Hike to Fight Inflation

If inflation does not come down from its currently elevated levels, the Federal Open Market Committee may need to act more aggressively later in the year and could push the federal funds rate past long-term neutral rates, Federal Reserve Chairman Jerome Powell said in an interview on Tuesday at the Wall Street Journal Future of Everything Festival.

The FOMC “will not hesitate” to act as needed to bring down inflation, Powell said, including speeding up the pace of rate increases or moving beyond the neutral rate, though Powell noted that the definition of “neutral” varies.

The most recent survey of FOMC participants showed a range of estimates of the neutral rate between 2% and 3%, with a median of 2.4%, so the FOMC could hit neutral by the end of 2022 or mid-2023 depending on the pace of rate increases.

If the economy evolves as expected, a rate increase of 50 basis points will be on the table for discussion at the June 14-15 meeting, Powell said, repeating his previous comments and those of other Fed officials over recent weeks. Powell noted that the FOMC is moving at the fastest pace in decades to remove accommodation.

Markets are more concerned with what happens after that, and Powell said that it is hard to provide forward guidance too far into the future given the uncertainty of both global events and how quickly inflation will decline.

The FOMC needs to “keep pushing ahead” on the rate increases and accelerate or slow the pace of rate increases depending on how conditions evolve, Powell said, with those decisions made on a meeting-by-meeting basis. # Fed Mulls Higher Interest Rate Hike to Fight Inflation