At an International Monetary Fund (IMF)-sponsored seminar on April 21, 2022, Federal Reserve Board (FRB) Chairman Jerome Powell said that an interest rate hike of “50 basis points will be on the table for the May meeting of the Federal Open Market Committee (FOMC). He noted that one or more 50 basis point (bp) hikes are supported by several FOMC members, but he would not divulge his own opinion.
Powell asserted that “bringing inflation back to the 2% target” is a key political imperative right now. He added that it is “absolutely essential to achieve price stability” in order to ensure labor market stability and overall economic stability.
Key points to remember
- On April 21, 2022, Fed Chairman Jerome Powell indicated that a 50 basis point (bp) interest rate hike was “on the table” for the May FOMC meeting.
- He also said that further 50 basis point hikes are favored by several FOMC members.
- It’s “absolutely critical to get price stability,” Powell said.
- He also felt that “we are not going back to the old economy”, regarding the big changes in the labor market.
Powell observed that “in terms of the American economy, we are a little further away” from the negative impacts of Russia’s invasion of Ukraine, as opposed to European nations. Nonetheless, despite a strong labor market and overall economy in the United States, Powell noted that the dispute is producing “upward pressure on prices and downward pressure on production.” He added: “Our goal is to use our tools to synchronize demand and supply, without recession.”
“Inflation is truly a global problem”
In response to a question from the panel moderator on whether inflation has peaked in the United States, Powell replied, “Inflation is really a global problem,” while adding that the United States have “higher underlying inflation than Europe”. He continued: “We expected inflation to peak around this time…but we have been disappointed in the past.”
As a result, Powell indicated that “we will quickly [interest rate] levels that are more neutral. Although he didn’t elaborate, the context suggests he meant “neutral” in terms of being neither stimulating nor depressing to economic activity.
The tools of the Fed
In response to a question from the moderator about the impact of Russia’s war against Ukraine on the supply of key raw materials, or COVID-related blockages in China on the supply of manufactured goods, Powell said that “our tools work on demand, not on offer”. In that vein, he added that there is “much more demand than supply in the job market.”
The moderator went on to ask if the stock market needed to be lower in order to reduce inflation. Powell did not answer this question directly, but observed that “financial conditions are affecting the real economy…we have seen a tightening in our rate hikes.”
The future of globalization
The moderator asked the panelists if, due to the disruptions created by Russia’s war against Ukraine, globalization was in the process of being reversed. Powell said they “could lead to a more fragmented economic situation” while indicating that these were largely political issues.
He observed that “globalization has had benefits for it, and costs for it”. He notably noted that “the supply chains we had were very efficient, but very fragile”.
“We are not going back to the old economy”
The moderator concluded by asking the panelists, “What are we not paying enough attention to?” Powell said the United States had a “remarkable response” to the pandemic, but “COVID is still with us.” He continued: “We are not going back to the old economy”, emphasizing the strong withdrawal of workers from the labor force, accompanied by an increase in wages due to the resulting imbalance between demand and demand. labor supply.
He noted that the United States has a “really good labor market for workers” and that “there’s a lot to like about the American job market.” He offered the caveat that the current pace of wage increases is not sustainable in the longer term.