Federal Reserve Chair Jerome Powell reaffirmed that the central bank is likely to raise interest rates by a half percentage point at each of its next two meetings, while leaving open the possibility it could do more.
In a interview with the Marketplace public radio program on Thursday, Powell made clear his determination to get inflation under control but conceded that the Fed’s ability to do that without triggering a recession may depend on factors outside its control.
“If the economy performs about as expected,” Powell said, “it would be appropriate for there to be additional 50-basis point increases at the next two meetings.”
Asked if he was taking a larger 75 basis-point increase off the table, he restated his comment from a May 4 press conference that the Fed wasn’t “actively considering” such a move, according to a transcript of the interview released by Marketplace.
But he added, “If things come in better than we expect, then we’re prepared to do less. If they come in worse than when we expect, then we’re prepared to do more.”
The Fed, fighting the highest inflation in four decades, raised interest rates by a half percentage point last week and Powell signaled at a press conference it was on track to do the same at its meetings in June and July.
Powell’s latest comments come on the day that the Senate confirmed him in a bipartisan 80-19 vote to another four-year term at the helm of the US central bank. While his political support is broad, the Fed has been criticised by some investors and former officials for being slow to confront rising prices stoked by pent-up demand and pandemic-induced supply-chain tangles. Those pressures have been made worse by Russia’s invasion of Ukraine and Covid lockdowns in China.
Powell acknowledged that the Fed probably should have lifted rates from near zero levels before March, when it initiated a credit tightening cycle.
“If you had perfect hindsight you’d go back and it probably would have been better for us to have raised rates a little sooner,” he said. “I’m not sure how much difference it would have made, but we have to make decisions in real time, based on what we know then, and we did the best we could.”
Powell said the Fed was aiming to achieve a soft landing of the economy, in which inflation returns to its 2% target while the labor market remains strong. But he added, that will be “quite challenging” to pull off and that the process of doing so “will include some pain.”
“The question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control,” he said, pointing in particular to geopolitical events and supply chain bottlenecks.
But regardless, Powell made clear that getting inflation down was his number one priority.
Asked at the end of the interview to sum up his thinking in five words, Powell replied, “Get inflation back under control.”
San Francisco Fed President Mary Daly, speaking in an interview earlier on Thursday with Bloomberg News, also reinforced expectations for half-point hikes in June and July.
“I expect financial conditions to tighten even more as we march through these rate increases,” Daly said. “I think we’ve made a good start on them already, but I would like to see continued tightening of financial conditions.”