The Federal Reserve is considering more than one option to keep interest rates low, and President Trump has signaled he will not interfere with the decision. The Fed’s next move could have a broad impact on how individuals invest their savings.

The “head of federal reserve” is considering more quantitative easing. The head of the Federal Reserve says that he will consider more stimulus if the economy does not improve.

Powell Says Fed Will Consider More



Chairman Jerome Powell of the Federal Reserve said the central bank was willing to increase interest rates in half-percentage-point increments and to levels high enough to purposefully slow the economy if it determined such action was necessary to reduce inflation.

Mr. Powell said during a moderated conversation after a speech to the National Association for Business Economics in Washington, D.C. on Monday, “If we believe it’s appropriate to increase [by a half point] at a meeting or meetings, we will do so.”

Mr. Powell used a harsher tone in his remarks than he did in a press conference just days earlier after the Fed voted to raise its benchmark rate by a quarter point, and he indicated a stronger bias toward raising rates until the central bank sees clear evidence that inflation is falling to its target of 2%.

Last week, the Fed raised the rate from near zero to a range of 0.25 percent to 0.5 percent, with policymakers planning a series of future rises to bring it to just under 2% by the end of the year and about 2.75 percent next year.

Mr. Powell emphasized the uncertainties that Fed policymakers face as they deal with the aftermath of the Covid-19 outbreak and the current crisis in Ukraine, and he said that they are prepared to change their policies in a more disruptive manner.

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Mr. Powell said, “If we find that we need to tighten beyond typical measures of neutral and into a more restrictive posture, we will do so.” In the case of annual inflation of 2%, most Fed officials estimate a neutral rate is about 2.5 percent.

As Mr. Powell spoke, stocks and bonds plummeted. On Monday, the Dow Jones Industrial Average fell 0.58 percent. In afternoon trade, the yield on the benchmark 10-year Treasury note climbed to 2.298 percent, since rates rise when bond prices decrease.

“Powell really went out today and outlined a lot of severe worries about inflation in the context of an undoubtedly overheated employment market,” said Tim Duy, chief economist at SGH Macro Advisors. “This was much more emphatic, and perhaps more representative of his personal views,” compared to Mr. Powell’s news conference last week, at which he spoke on behalf of the central bank’s rate-setting committee.

According to the most recent figures available, annual inflation climbed to 6.1 percent in January, according to the Fed’s preferred measure. Inflation in the core, which excludes food and energy, rose to 5.2 percent. According to predictions released last week, most Fed members now expect core inflation to conclude the year at 4.1 percent if rates are raised to approximately 2% this year.

Mr. Powell stated that the inflation outlook had deteriorated significantly even before Russia’s invasion of Ukraine, and he warned that the effects of the war in Europe, as well as the West’s response to severely sanction Russia’s economy, could exacerbate supply-chain disruptions and raise prices of key commodities used to make a variety of goods. Mr. Powell’s address was headlined “Restoring Price Stability,” indicating his increasing intolerance for inflation shocks.

The Fed predicted that inflation would fall this year as supply-chain bottlenecks eased in January. Mr. Powell said Monday, “That tale has already broken apart.” “If things keep falling apart, my colleagues and I may come to the conclusion that we need to act more swiftly.” And if that’s the case, we’ll take action.”

Chairman Jerome Powell of the Federal Reserve said that interest rates would be raised by a quarter percentage point from near zero. Powell also hinted at intentions to gradually raise rates this year in order to keep inflation in check. The Board of Governors of the Federal Reserve System is seen here.

Mr. Powell compared the possible inflation shock from a jump in a wide variety of commodities, including energy, as a result of the Ukraine crisis to the oil price shocks caused by geopolitical events in the Middle East in the 1970s. Mr. Powell said that the Fed’s past was “not a pleasant one,” since it resulted in double-digit inflation.

Supply shocks have a temporary influence on inflation, according to central bank textbooks, as long as the public does not predict persistently greater future inflation. Expectations were less steady in the 1970s, and shocks in 1973 and 1979 contributed to larger inflation. Inflation expectations have been reasonably constant during the 1990s, according to consumer surveys and market-based metrics, reducing the impact of oil shocks in 1990 and 2003.

The issue is whether the shocks of the 1970s will repeat themselves in 2022 or if they will be more recent. Mr. Powell described the shock in Ukraine as “more like a conventional supply shock [that] you would want to want to look through.” He did say, however, that the Fed was less likely to overlook the shock than it would have been otherwise since high inflation risks raising consumer and corporate expectations to levels that might generate a much more unstable psychology of increased prices.

Mr. Powell said, “I wouldn’t say we’re comfortable with the normal we’ll simply look through that approach.”

The Fed’s job today is to keep inflation in check by increasing rates just enough to keep demand in check but not enough to send the economy into recession. Mr. Powell said that engineering a so-called gentle landing is still conceivable, and he cited three examples from the previous 60 years in which he believes the Fed has done so.

“No one expects a soft landing to be uncomplicated in the present setting—very nothing is straightforward in the current situation,” he said, adding a few qualifiers.

Mr. Powell went on to say that monetary policy is a “broad tool” that cannot be used with surgical precision. “My colleagues and I shall give it our utmost to complete this difficult assignment.”

To drive inflation down this year and next, the Fed is still banking on the recovery of supply chains and the return of people to the labor market. However, in contrast to the Fed’s posture throughout most of 2021, Mr. Powell said that it could no longer determine policy by projecting that such relief would happen.

“As we establish policy, we’ll be looking for real progress on these concerns rather than presuming major supply-side assistance in the short term,” he added.

Mr. Duy believes such remarks were the most clear acknowledgement of the Fed’s increased haste to raise rates in recent weeks. Mr. Duy said, “They’re going to keep hiking until they get clear evidence that they can back off their inflationary fears.” “Rather than hoping for a decrease in inflation, they need unambiguous and persuasive proof of a decrease.”

For the first time, Mr. Powell acknowledged that the economy was experiencing a profound transformation, and that many of the dynamics that had contributed to reduced inflation over the previous 25 years, such as globalization, may be unraveling. He claims that globalization has made it significantly more difficult for businesses to increase prices, and that a more fragmented global economy may reverse some of the pressures that have kept prices low in recent decades.

Mr. Powell stated that before the epidemic, he had never considered these arguments in favor of greater future inflation especially compelling, but that it was difficult to predict how the virus, the unusually robust policy reaction, and the conflict in Ukraine might alter the economy’s character.

“At the Fed, no one is sitting around… It’s just a matter of time until the old regime returns. “I believe everyone understands the circumstance we’re in,” he remarked. “There have been a number of shocks, and we have a job to perform, and we’re quite focused on accomplishing that job.”

Nick Timiraos can be reached at [email protected]

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