Economy

Fed Chair Powell flags sharp rate hike next month

FILE PHOTO: Federal Reserve Chair Jerome Powell testifies during the Senate Banking Committee hearing titled “The Semiannual Monetary Policy Report to the Congress", in Washington, U.S., March 3, 2022. Tom Williams/Pool via REUTERS/File Photo

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Generally speaking, when the US central bank increases its rate, it does it in quarter-point increments. But right now, inflation is at a four-decade high, and it’s a problem around the world because of supply disruptions from various things like the Russia-Ukraine war and the lockdowns in China. So in a panel discussion, Fed Chairman Jerome Powell said that it’s possible the Fed will be increasing interest rates by two or more half percentage points starting from the next policy meeting in May to try to cool down the economy.

This would be the fastest tightening since 1994, but Wall Street was already expecting an aggressive approach like this from the Fed for the next few policy meetings.

Key comments:

“I would say that 50 basis points will be on the table for the May meeting,” Powell said at a panel discussion on Thursday alongside European Central Bank President Christine Lagarde and others. He also said demand for workers is “too hot – you know, it is unsustainably hot.”

“This is going to be a very close call on whether we get a recession or not,” said Ethan Harris, head of global economics at Bank of America Securities. “They have to get monetary policy into tight territory, and they probably need to get some kind of rise in the unemployment rate.”