Jerome Powell sounds belligerent on inflation

22 Sep 2022 , 11:24 AM

After a 75 basis points hike in interest rates for the third time in a row and anticipation of more aggressive hikes ahead, Federal Reserve Chair Jerome Powell said authorities will smash inflation.

“We need to get ahead of inflation. I wish we had a less painful way to do that. However, there isn’t,” stated Powell in a press conference held in Washington.

“Rising interest rates, slower growth, and a weaker labour market are all difficult for our people. But they aren’t as unpleasant as failing to restore pricing stability and having to do it all over again,” he added.

The S&P 500 stock index ended around session lows, extending its drop from a January high to more than 20%. Following the Fed statement, the index struggled to find direction, rising as high as 1.3% at one point. The yield on the two-year Treasury bonds surpassed 4% for the first time since 2007. The dollar strengthened.

The Fed chair agreed that the median of policymakers’ quarterly predictions projected another 125 basis points hike this year. However, there has been no decision on the size of the rate increase yet.

If you go by the statements, most of them signalled that officials would not hesitate to raise rates by more than they currently expect, if that is what is needed to curb inflation.

As per the projections, the rates could be seen stepping down to 3.9% in 2024 and 2.9% in 2025.

The Fed’s move comes against the background of other central banks tightening in response to rising global pricing pressures. This year, around 90 countries have raised interest rates, with half of them doing so by at least 75 basis points all at once.