The 16th chair of the Federal Reserve, Jerome Powell said that America’s “inflation is much too high” on Monday, and he further explained that the U.S. central bank is willing to raise rates more aggressively. Off the heels of the first benchmark interest rate increase since 2018, Powell stressed that the Fed will “take the necessary steps” to ensure price stability is feasible. The Fed chair further said raising the federal funds rate by “more than 25 basis points” may be appropriate.
Powell Envisions ‘Raising the Federal Funds Rate by More Than 25 Basis Points’
The U.S. Federal Reserve hiked the federal funds rate on March 16, 2022 for the first ever time since 2018. It expects to increase the rate six times more this year. Inflation has jumped a great deal in the United States, in a short period of time, as the U.S. Labor Department’s February Consumer Price Index (CPI) report indicated that inflation has risen at the fastest pace since 1982.
On Monday, following last week’s rate hike, Powell vowed the central bank would be aggressive toward ensuring price stability returns to normal. Powell explained the Fed’s position during remarks at the National Association for Business Economics. “The labor market is very strong, and inflation is much too high,” Powell detailed. The central bank’s chair noted that in order to tame inflation, the federal funds rate could be raised higher than the traditional 25 basis points (bps) raise. Powell said:
We will do everything we can to return price stability. We will, in particular, take the necessary steps to ensure price stability. We will also take a restrictive stance if it becomes apparent that common measures of neutral are not sufficient.
Fed Chair Hopes ‘Supply-Side Healing Will Come Over Time’
Powell’s remarks follow a great number of investment banks that predicted the Fed would be more aggressive this year, well before the first rate hike. James Bullard (the president of the Federal Reserve Bank of St. Louis) issued an opinion piece calling for more aggressive actions in the face of rising inflation. Meanwhile, Powell explained on Monday that the world may be settling in on a “new normal” but things are still “uncertain,” especially with the ongoing Russia-Ukraine conflict.
“It continues to seem likely that hoped-for supply-side healing will come over time as the world ultimately settles into some new normal, but the timing and scope of that relief are highly uncertain,” Powell told the attendees at the National Association for Business Economics. “In the meantime, as we set policy, we will be looking to actual progress on these issues and not assuming significant near-term supply-side relief.” The central bank chief further added:
Normal times when inflation and employment are within our goals, the monetary policy will look for a short burst in inflation due to commodity price shocks. The risk of prolonged periods of high inflation is increasing, and longer-term forecasts could be uncomfortably higher. This underscores why the Committee must move quickly as I described.
Analyst Sven Henrich calls Powell’s Commentary ‘Performance Art,’ Wall Street’s Top Indexes Shudder After Powell’s Statements
Following Powell’s remarks, the Fed chair received some criticism from a number of analysts and economists. Northman Trader’s Sven Henrich told his 360,000 Twitter followers that the central bank chief’s commentary was “performance art.”
“If he believed in the urgency of all the things he said today he should’ve raised by 50bp last week. He didn’t. They literally squeezed their balance sheet to new all-time highs in time for last week’s Fed meeting,” Henrich tweeted.
In addition to the macro and technical analyst Henrich, the gold bug and economist Peter Schiff gave shared his two cents about Powell’s most recent comments. “If the Fed really is committed to doing whatever it takes to fight inflation [and]Why did the government buy $46.3 billion more in Govt. debt in the week that ended March 16th Schiff askedTweet. “That pushed the size of the Fed’s balance sheet to a record-high $8.954 trillion,” he added.
Powell’s commentary also sent shock waves through Wall Street as the top indexes saw losses on Monday. Closing the trading day, Nasdaq, NYSE, S&P 500, and the Dow Jones Industrial Average were all in red. Reuters’ reporter Stephen Culp explained on Monday that “Wall Street [slipped] after Powell’s hawkish remarks.”
How do you feel about Jerome Powell, Fed Chair, stating that he would aggressively raise rates by 25 basis points or more? Do you agree with the Fed’s criticism of Powell after his remarks? Comment below to let us know your thoughts on this topic.
Images CreditsShutterstock. Pixabay. Wiki Commons
DisclaimerThis article serves informational purposes. This article is not intended to be a solicitation or offer to sell or buy any product, service, or company. Bitcoin.com is not a provider of investment, tax, legal or accounting advice. The author and the company are not responsible for any loss or damage caused or alleged caused by the content or use of any goods, services, or information mentioned in the article.