The Fed may increase rates quicker to tame inflation, Powell says

The Fed may increase rates quicker to tame inflation, Powell says
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 2, 2022. REUTERS/Brendan McDermid

US Fed Chair Jerome Powell recently floated the idea of raising interest rates a little sooner than before in an effort to fight inflation, which is the top priority for this year. The specific idea he casually threw out there was that the Fed might increase rates by half a percentage point as early as May. Powell called the economy “very strong” and able to handle higher rates.

For some context here, the Fed only recently started increasing rates from when they were nearly at zero throughout the pandemic. They’ve been doing it in just quarter-percentage increments, so this suggestion is a bit of a bold move.

Key comments:

“We will take the necessary steps to ensure a return to price stability,” said Powell in a speech on Monday. “In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”

“He doesn’t want to preside over another episode where they were too slow to act,” said Derek Tang, an economist at L.H. Meyer in Washington. “He is trying to get ahead of things. We were leaning toward a half-point hike in June, but this speech could move it to May.”

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