MNI STATE OF PLAY: Fed Pledges More 50BP Moves To Tame Prices

Federal Reserve Chair Jerome Powell took the unusual step of addressing his post-meeting remarks directly to the American people, declaring inflation is far too high and officials may keep hiking by 50bps to bring it down.

“The labor market is extremely tight and inflation is much too high,” Powell said at a press conference Wednesday after lifting the upper bound of the Fed funds rate to 1%. “We are on a path to move our policy rate expeditiously to more normal levels,” he said, echoing committee language that signals the prospect of multiple 50 basis point rate hikes.

Powell downplayed the prospect of a 75bp move that became fodder for market speculation after St. Louis Fed President James Bullard mentioned it as a possibility. “A 75 basis point increase is not something the committee is actively considering,” Powell said.

The FOMC will keep 50 basis point hikes “on the table over the next few meetings,” he said. Powell didn't specify what economic shifts might warrant a stepping down of rate rises to quarter point moves.

“The test is really just economic and financial conditions evolving broadly in line with expectations. And the expectation is that we’ll start to see inflation flattening out,” he said.

SOFT LANDING NOT EASY

Powell isn't overly concerned about consumers’ inflation expectations becoming unanchored but he’s paying close attention to the risk. “We don’t really see strong evidence of that yet.”

The Fed can pull off a reduction in inflation without pushing the economy into recession, Powell said, but admitted the path isn't easy.

“We’re raising rates expeditiously to what we see as plausible levels as neutral," he said. "We’re going to be looking at financial conditions. And then we’re going to be looking at the effects on the economy. And we’re going to make a judgment.”

MNI reported last week the Fed was set to embark on a series of rate increases that will bring borrowing costs to levels more consistent with what it sees as neutral.