Powell says taming inflation is ‘important,’ and a 50-basis-point climb is likely
Key takeaways:
- Fed Chairman Jerome Powell on Thursday stated the central bank is dedicated to increasing rates “expeditiously” to get down inflation.
- That could mean an interest rate climb of 50 basis points in May as prices increase at their fastest rate in almost 40 years.
- “It’s important to fix price stability,” he added.
Federal Reserve Chairman Jerome Powell announced the central bank’s decision to get down inflation and said Thursday that aggressive rate climbs are likely next month.
“It is right to be moving a little faster” to raise interest rates, Powell said during part of an International Monetary Fund panel. “I also think there is something to be conveyed for front-end loading any housing one thinks is proper. ... I would say 50 basis points will be on the table for the May meeting.”
Powell’s comments effectively meet market anticipations that the Fed will depart from its average 25-basis-point hikes and move faster to tame inflation that is running at its fastest rate in almost 40 years.
A basis point equals 0.01 percentage points.
However, as Powell said, market pricing for rate climbs became more forceful.
Anticipations for a 50-basis-point move in May increased to 97.6%, according to the CME Group’s FedWatch Tool. Traders also priced in an extra hike match through year’s end that would take the fed funds rate, which sets the overnight borrowing level for banks and is tied to numerous customer debt instruments, to 2.75%.
At its March meeting, the Fed agreed on a 25-basis-point move, but officials in recent days have said they see a necessity to move more quickly with customer inflation running at a yearly rate of 8.5%.
“Our objective is to use our tools to get demand and supply back in synch so that inflation drives down and does so without a slowdown that amounts to a recession,” Powell said.