Powell Vows to Cool Prices With Hikes That Risk Economy Pain
Federal Reserve Chair Jerome Powell assured Americans that policy makers will do what it takes to curb surging inflation, acknowledging this could cause “some pain” as the U.S. central bank deployed its most powerful policy tightening in decades.
The Fed on Wednesday raised interest rates by 50 basis points for the first time since 2000 and Powell said similar moves were on the table for June and July. Still, investors took heart that he also pushed back against a larger 75 basis-point increase, with stocks enjoying their largest rally on the day of a Fed meeting in a decade.
“I’d like to take this opportunity to speak directly to the American people,” Powell said at the very start of a post-meeting press conference in Washington, held in person for the first time since the pandemic began. “Inflation is much too high and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down.”
Fed officials -- who also decided to start reducing their holdings of Treasuries and mortgage-backed securities next month -- are trying to curb the hottest inflation since the early 1980s. Back then, Chair Paul Volcker raised rates as high as 20% and crushed both inflation and the broader economy in the process.
The Fed’s hope this time around is that the combination of rising borrowing costs and a shrinking balance sheet will deliver a soft landing that avoids recession while tamping down inflation, though Powell implied this might not be possible without hurting growth.