The chairman of the US Federal Reserve indicated a key interest rate hike of 0.5 percentage points.
(Photo: Reuters)
new York Jerome Powell is preparing investors for a more aggressive course. A 0.5 percentage point hike in interest rates at the upcoming May meeting “is definitely an option,” the Federal Reserve (Fed) governor said Thursday at an International Monetary Fund (IMF) event in Washington The head of the European Central Bank (ECB), Christine Lagarde, also attended.
It is his last appearance before the so-called quiet period in the run-up to the upcoming central bank meeting in early May. In doing so, he confirms very clearly what many Wall Street investors had already suspected.
Traditionally, the Fed raises interest rates by 0.25 percentage points. However, the Federal Reserve is late. With inflation at 8.5 percent in March, she must act urgently to restore price stability. The Fed is actually aiming for an inflation rate of a good two percent and it is “absolutely important” to get prices stable again.
The question now is how aggressive the Fed will be throughout the year. James Bullard, head of the regional central bank in St. Louis, said earlier in the week that the key interest rate should be 3.5 percent by the end of the year. It is currently at 0.25 percent after the interest rate turnaround in March.
Top jobs of the day
Find the best jobs now and
be notified by email.
Bullard also thinks an increase of 0.75 percentage points is possible. Mary Daly, the head of the regional central bank in San Francisco, had demanded the same thing on Thursday.
Central bank wants a soft landing
“The US economy is strong,” Powell said. It is still the goal of the central bankers to head for a so-called soft landing. Demand will be dampened slightly without plunging the economy into a recession. However, there is no guarantee that this will succeed, the Fed chairman admitted.
Deutsche Bank, however, expects a recession “in late 2023 and early 2024,” wrote chief economist David Folkerts-Landau in an analysis. “Prepare for a hard landing”.
The ECB will also have to raise interest rates significantly in the coming year. However, Lagarde declined to commit to its interest rate strategy on Wednesday.
Markets in New York barely reacted to Powell’s announcement. The broad S&P 500 was down a good 0.5 percent on Wall Street early in the afternoon.
The heads of the central bank expect that the issue of inflation will keep the global economy busy for quite some time. Also because massive shifts in world trade are imminent due to the war in Ukraine. “We will reassess who we trade with and under what terms, and we will reorganize our supply chains,” Lagarde said.
Powell, meanwhile, spoke of a “political and economic world that is more fragmented. It can also lead to higher inflation, but will make supply chains more resilient,” the Fed chair said. Globalization has “slowed down and could be reversed, that is not yet entirely clear.”
More: Inflation rate in the euro zone rises to a record high of 7.4 percent