The chairman of the Fed reiterates his determination to fight inflation: he may continue to raise interest rates by 50 basis points at the subsequent meeting
On May 17, local time, Federal Reserve Chairman Jerome Powell reiterated that the Fed's determination to fight the highest inflation in 40 years should not be questioned, even if it requires pushing up the U.S. unemployment rate.
"If this involves raising rates above neutral, we won't hesitate to do so." Powell told the Wall Street Journal in a live interview that the Fed will continue to tighten monetary policy until financial conditions are back in place, now looking at Until inflation is falling.
In early May, the Federal Reserve Open Market Committee (FOMC) announced that it would raise the target range of the federal funds rate to a range of 0.75%-1.00%, the first 50 basis point interest rate hike by the Fed in nearly 20 years.
In addition, the Fed unveiled plans to shrink its massive balance sheet starting in June.
The U.S. Bureau of Labor Statistics released data showing that the U.S. CPI rose 8.3% year-on-year in April, down from the 8.5% increase in the previous month, but higher than market expectations of 8.1%.
Powell said a further 50 basis point rate hike is likely at subsequent meetings as long as economic conditions remain similar to the current one.
Powell also reiterated the Fed's pledge to bring inflation down to around 2%, warning that it may not be easy and could come at the cost of an unemployment rate of 3.6%, the lowest since the late 1960s.
Powell said he did not disagree with those who believe the Fed faces difficulties in achieving a so-called "soft landing."
He said he remains hopeful that the Fed will be able to hit its inflation target without dragging down the economy.
A return to price stability may indeed bring some "pain," but the labor market should remain strong, unemployment will remain low, and wages remain elevated.
After the new crown epidemic, because the Federal Reserve adhered to the employment-first monetary policy, it adopted a great tolerance for inflation.
Powell said the disruption caused by the pandemic may have transformed the labor market, leaving current levels of unemployment at odds with the Fed's 2 percent inflation target.
"This is not the time for a detailed interpretation of inflation. We need to see inflation come down in a convincing way." Powell said stable prices are the cornerstone of the economy, and without price stability, the economy would be ineffective for workers and businesses alike to help.