Federal Reserve Chair Jerome Powell said he saw merit in the argument for front-loading interest-rate increases, including a half percentage-point hike next month.
“I would say that 50 basis points will be on the table for the May meeting,” Powell told an IMF-hosted panel on Thursday in Washington that he shared with European Central Bank President Christine Lagarde and other officials. “We really are committed to using our tools to get 2% inflation back,” he said, referring to the Fed’s target for annual price increases.
Central bankers are grappling with some of the highest inflation rates since the 1980s that are being further pressured as Russia’s invasion of Ukraine boosts food and energy prices and China’s coronavirus lockdowns tangles supply chains anew.
In the U.S., the consumer price index rose 8.5% in March from a year earlier, the most since 1981; the Fed’s target is based on a separate measure known as the personal consumption expenditures price index. Fed officials have signaled they plan to lift the policy rate this year to a “neutral” level that neither speeds up nor slows down the economy, which could be 2 percentage points higher than where they have it now.
Interest-rate futures are fully pricing a half-point move in the benchmark lending rate when U.S. central bankers meet May 3-4 and another half-point hike is fully priced for June. Investors are betting on a third half-point increase for July.
Powell said “there’s something in the idea of front-end loading” moves if appropriate, “so that points in the direction of 50 basis points being on the table.”
Fed officials are also likely to give the green light in May to a plan to start shrinking their balance sheet, with runoff capped at $95 billion a month combined for Treasuries and mortgage-backed securities.
This article was provided by Bloomberg News.